Portucel Empresa Produtora de Pasta e Papel, SA

Public limited company

Registered Under nr. 503 025 798 at Setúbal Companies Registry Share Capital: 767 500 000 euros VAT Number. 503 025 798

Annual Report 2010

www.portucelsoporcel.com

Annual Report 2010 1

Contents

Message from the Chaiman 4 Message from the Chief Executive Officer 6

1. The Portucel Group in 2010 8

ƒ Business Area 8 ƒ Location of the Group’s Commercial Subsidiaries and Industrial Units 8 ƒ Economic and Finantial Indicators 9 ƒ The Portucel Group 10 ƒ Analysis of Results 15 ƒ Financial Situation 17 ƒ Indebtedness 18 ƒ Development 19 ƒ Risk Management 19

2. Capital Markets and Share Price Performance 22

ƒ Capital Markets 22

3. Market Performances 24

ƒ Economic Environment 24 ƒ Paper 26 ƒ Branding 28 ƒ Pulp 34 ƒ Logistics 35

4. Industrial Operations 37

ƒ Capital Expenditure Projects 39

5. Resources and Supporting Functions 40

ƒ Sustainability 40 ƒ Forestry 41 ƒ Procurement 45

Annual Report 2010 2

ƒ Environment 47 ƒ Energy 51 ƒ Human Resources 53 ƒ Social Responsibility l 54 ƒ Innovation 56

6. Outlook 59

ƒ Acknowledgments 61 ƒ Declaration required under Article 245.1 c) of the Securities Code 62 ƒ Corporate Bodies 63 ƒ Mandatory Disclosures 65

7. Consolidated Accounts and Notes to the Financial Statements 70

ƒ Statutory Auditors Report in respect of the Consolidated Financial Information 113 ƒ Report and Opinion of the Audit Board 115 ƒ Corporate Governance Report 117

Annual Report 2010 3

Message from the Chairman

Shareholders,

The Group enjoyed a successful year in 2010. Both sales and earnings grew significantly, climbing to their highest levels ever. We strengthened our business in the main markets in which we operate and extended our presence into many others. We also reached the end of a challenging capital expenditure programme with a completely balanced financial situation.

These achievements are all the more significant when we consider the worrying signs of imbalance and stagnation still be to seen in the global economy, and even more so in the case of Portugal, both yet to recover from the deep crisis they have experienced, principally from mid-2008 onwards.

The results achieved reflect the great care and dedication displayed by the Executive Board and the Group’s increased capacity in its different industrial sectors, especially in paper production and energy, the prime beneficiaries of the challenging investment programme which has been implemented since Semapa became the majority shareholder.

With this sequence of investment projects behind them, the Portucel Group’s industrial facilities have been modernized and their productivity improved, thanks to more advanced technology, especially relating to compliance with environmental standards.

The strategy underlying this series of capital projects was to enable the Group to incorporate more of the value adding chain and to achieve a substantial increase in vertical integration, processing all the pulp produced in Setúbal into paper (as previously implemented at the complex in Figueira da Foz). This was accompanied by establishing the Group as a much more important producer of electrical power, mainly derived from renewable sources.

This strategic option has made it possible to offset to a certain extent the fact that the main cost factor, eucalyptus timber, presents costs well above those prevailing in most countries where the Group’s direct competitors operate.

Attention has been drawn repeatedly to the urgent need to implement an effective policy geared to increasing the production capacity of Portugal’s forests, essentially through measures designed to improve productivity. The country is presently wasting much of its potential, with a direct negative impact on all forest-based businesses.

Annual Report 2010 4

The current situation, in which Portugal imports large volumes of timber (because internal supply is restricted in quantity, and because of the limited area of certified forests), is a serious obstacle to the sustainability of the sector and a hindrance to growth.

In its first full year of operation, the new paper mill, which started production in the second half of 2009, continued to make smooth progress along the learning curve, as duly planned. This is an ongoing process, and one which has already projected the Portucel Group to the top place in the ranking of European manufacturers of UWF paper.

The Portucel Group operates in a particularly demanding sector, completely exposed to international competition. With its industrial units located in Portugal, it lacks the advantage of a domestic market of significant size, such as might offset the heavy logistical costs involved in selling to distant markets.

In order to counteract these sizeable disadvantages (and many others that I will refrain from mentioning), the Portucel Group has worked strenuously to improve the productivity and efficiency of its operations and to improve the value of its products, supported by a consistent policy of innovation, differentiation and customer service.

It gives me great satisfaction to report that the Group’s chosen strategy of focussing investment on the areas in which it is internationally competitive has passed the test of the market, which is the definitive gauge of the success of any business decisions.

I would like to take this opportunity to thank our shareholders for their confidence in the Group and to express my appreciation to our customers, suppliers, financial institutions, employees and other stakeholders for the work they have made possible.

In a year which proved particularly difficult for the Portuguese economy, it is very gratifying to be able to point to the important contribution made by the Portucel Group to generating the country’s wealth, especially through its exports with a high level of value added and the creation of skilled employment.

I am confident that the Portucel Group will continue to grow and flourish over the years ahead.

Setúbal, 15 March 2011

Pedro Queiroz Pereira Chairman of the Board of Directors

Annual Report 2010 5

Message from the Chief Executive Officer

Shareholders,

The Portucel Group had a structurally important and sustainable impact on Portugal’s economy in 2010:

− 58% of Portuguese woodlands certified under the PEFC scheme and 47% of the country’s woodlands certified under the FSC scheme

− 3.4% of Portugal’s power output

− 52% of all energy derived from biomass

− 9% of all containerized and conventional cargo handled at Portuguese ports for export

− More than 3% of Portuguese exports of goods, making us probably the country’s leading exporter in terms of national value added.

We have strengthened our leadership in the premium segments of the European market for uncoated woodfree (UWF) paper, with our own brands representing a larger share of sales. We have pressed ahead with marketing and branding policies designed to embody a business model based on distinctive products and a segment-oriented product range.

We have increased the number of markets to which we sell our products, and exported in 2010 to 105 countries, delivering UWF paper to 4,400 distinct locations. Exports accounted for more than 94% of our eucalyptus pulp and paper business.

We significantly increased our output of electricity, especially derived from biomass, a renewable source.

In manufacturing tradable goods which we export, we compete with a vast number of forest-based companies and industries in different countries where local costs are significantly lower than those we face in Portugal.

We have accordingly worked hard to maintain right controls on overheads, to improve the efficiency of industrial assets and to achieve sustainable improvements in productivity.

As a result, we compare favourably with most of our competitors around the world, in terms of performance and risk, as witnessed by our consolidated financial statements at 31 December 2010.

We maintained strict control on credit risk, by country and by customer, and ended the financial year with an entirely negligible level of default.

Annual Report 2010 6

The economic and social environment remains difficult in the main markets to which we export our products, and we have therefore continued to follow an extremely prudent policy for managing credit risk, taking a conservative approach to execution of financial policy.

The main obstacle to the development of forest-based industries in Portugal and of our Group in particular are the local costs – administrative, regulatory and operational – which continue to multiply.

It is fundamental that the Portuguese authorities (central and local government, and other bodies) with direct or indirect regulatory responsibility for the forestry sector should take stock of the structural importance of forest-based industries, today the country’s third largest export sector, and act accordingly, serving as an important and constructive link in the value chain.

We have skilled human resources, a robust financial structure and the necessary shareholder support to work towards sustainable development of the Group in other geographical regions.

The plan to acquire 200,000 hectares of land in Brazil, in the state of Mato Grosso do Sul, has been held up by supervening legal difficulties resulting from severe restrictions, imposed in August 2010, on the acquisition of rural land by foreign investors.

This is a large-scale investment project, with vertical integration of forestry, energy production and manufacture of eucalyptus pulp for export, and we will continue to make every effort to overcome the obstacles which currently prevent us from proceeding.

We have in the meantime started field work and experimental forestry plantations in Mozambique, with a view to implementing in due time a vertically integrated business model involving forestry, energy production and manufacture of eucalyptus pulp. This is another large-scale and challenging project, to be implemented in various stages over several years.

In 2011, the sense of uncertainty and volatility in the world economy has become even more acute, presenting the Group with additional challenges.

To all those who are proud to contribute their work, enthusiasm and sense of ambition to the success of the Portucel Group in its different business sectors, I am pleased to express my appreciation and trust in their abilities.

Setúbal, 15 March 2011

José Honório

Chief Executive Officer

Annual Report 2010 7

1. The Portucel Group in 2010

Business Areas

Research & Development

Agroforestry

Pulp and Paper Production Portucel Group

Energy

Other Business Areas

Sales and Marketing

Location of the Group’s Commercial Subsidiaries and Industrial Units

Annual Report 2010 8

ECONOMIC AND FINANTIAL INDICATORS

2010 2009 2008 2007 2006

Million euros Total sales 1,385.5 1,095.3 1,131.9 1,147.4 1,080.7 EBITDA (1) 400.2 222.2 271.7 340.7 312.5 Operating earnings (EBIT) 277.8 132.1 181.1 260.3 209.3 Financial earnings -20.1 -7.5 -19.6 -27.5 -26.5 Net Profit 210.6 105.1 131.1 154.0 124.7 Cash Flow (2) 332.9 195.2 221.7 234.4 227.9 Investment 95.5 505.4 246.9 52.8 18.8 Net debt 652.7 670.0 459.7 367.8 480.1

Net assets 2,672.5 2,561.2 2,451.3 2,458.7 2,292.7 Liabilities 1,369.0 1,290.6 1,205.1 1,282.4 1,169.1 Equity 1,303.5 1,270.6 1,246.3 1,176.2 1,123.6

EBITDA / Sales (in %) 28.9% 20.3% 24.0% 29.7% 28.9% ROS 15.2% 9.6% 11.6% 13.4% 11.5% ROE 16.4% 8.4% 10.8% 13.4% 11.6% ROCE (4) 14.3% 7.2% 11.1% 16.5% 12.4% Equity to assets ratio 0.49 0.50 0.51 0.48 0.49 Net debt / EBITDA 1.6 3.01.71.11.5

Euros Net earnings per share 0.27 0.14 0.17 0.20 0.16 Cash flow per share 0.43 0.25 0.29 0.31 0.30 EBITDA per share 0.52 0.29 0.35 0.44 0.41 Book value per share 1.70 1.66 1.62 1.53 1.46

(1) Operating results + depreciation + provisions (2) Net profits + depreciation + provisions (3) Includes market value of own shares as at 31/12 (4) Operating results / (average equity + average net debt)

Annual Report 2010 9

The Portucel Group

The Group’s contribution to the Portuguese Economy

The Portucel Group is of structural significance to the Portuguese economy and its contribution in 2010 can be quantified as follows: • Turnover of approximately 1.4 billion euros • Exports worth approximately 1.2 billion euros • The Group accounts for more than 3% of Portuguese exports of goods and 0.8% of the country’s GDP • 94% of sales go to more than 100 countries, over five continents • Sales to North America and the Middle East account for 8% and 17% of Portugal’s exports to these markets • Europe’s leading manufacturer of UWF paper • Navigator – the world leader in the premium office stationery segment • Annual production capacity for 1.6 million tons of paper, 1.4 million tons of pulp and electricity measuring 2.5 TWh • A workforce of 2331 employees, as well as indirect employment counted in the thousands • 120 thousand hectares of woodlands under Group management • Produces and plants more certified trees in Portugal than any other organization • Forestry management certified under the international FSC and PEFC schemes

• Carbon retained in the woodlands under management represents more than double its CO2 emissions from industrial facilities • Portugal’s leading producer of power from biomass – accounting for 52% of the country’s total output • Recent investment plan worth 900 million euros, of which approximately 200 million euros in the energy sector • Power output of 1.7 TWh – represents 3.4% of total electricity generated in Portugal • Accounts for approximately 9% of total containerized and conventional cargo handled at all Portuguese ports

Annual Report 2010 10

Group Profile

The Portucel Group is one of Portugal’s strongest players on the world stage, operating in a sector of crucial structural importance to the country’s economy and enjoying a prominent position on the international pulp and paper market.

The Portucel Group is one of the leading exporters in Portugal, and possibly the exporter generating the most national value added, accounting for more than 3% of Portuguese exports of goods.

The Group is the leading European manufacturer of UWF (uncoated woodfree) printing and writing paper, placing Portugal at the top of the European ranking of countries manufacturing this type of paper. The Group is also Europe’s leading manufacturer, and one of the largest producers in the world, of bleached eucalyptus kraft pulp (BEKP).

The Group’s existing production structure comprises an industrial complex in Cacia, producing cellulose pulp and energy, and two integrated industrial complexes producing cellulose pulp, energy and paper, located in Setúbal and Figueira da Foz, setting international standards for scale and technological sophistication.

The Group has successfully pursued a strategy of innovation and development of its own brands, which today account for 60% of sales of manufactured products. Special mention should be made of the Navigator brand, the world’s best-selling product in the premium office paper segment. The Group sells its products to more than 100 countries over five continents, with the bulk of its sales going to Europe and the United States. Exports to markets outside the European Community account for 31% of its foreign sales.

In 2010, the Portucel Group was responsible for 59% of European exports of UWF printing and writing paper to North America, 55% to Africa, 39% to the Middle East, 37% to Latin America and 2% to Asia. These indicators provide a clear picture of its strong international presence and its leading position in the European paper and pulp industry.

The position established in international paper markets has been backed up by investment in marketing, designed to create brand awareness and to provide information on markets and consumers, and by an extensive sales network, with dedicated sales offices in the Group’s main markets, geared to cultivating close relations with customers, identifying their changing needs and providing a high standard of service, before and after sales.

The Portucel Soporcel group pursues an active policy of developing Portugal’s woodlands, and is responsible for the largest number of trees planted in the country. The Group’s nurseries produce on

Annual Report 2010 11

average approximately 8 million plants each year, of which 65% are eucalyptus saplings, 32% other forest species (pine, cork oak, holm oak and others) and 3% ornamental plants.

Sustainable woodlands management is one of the Group’s strategic concerns. As one of the leading players in the eucalyptus forestry sector, the Portucel Group is responsible for the management of approximately 120 thousand hectares of forest. A trailblazer for forestry certification in Portugal, the Group’s forest management system is certified under the PEFC – Programme for the Endorsement of Forest Certification schemes and by the FSC – Forest Stewardship Council. These certifications serve to assure that the Group’s forests are managed responsibly, from an environmental, social and economic point of view, in keeping with strict, internationally established standards.

The Group has been a driving force behind the expansion of the forest certification process in Portugal, through cooperation agreements signed with forestry producer organizations and awareness raising campaigns aimed at landowners. The Group has been a pioneer at global level in paying a premium on purchases of certified timber, prompting a reference to Portugal in the “Forest Products 2007/2008” report from the FAO (Food and Agriculture Organization).

An important event in 2010, International Biodiversity Year, was the holding of a seminar organized by the Group on the theme “Biodiversity, an Asset with a Future”, attracting participation of leading Portuguese and international experts in the field of biodiversity conservation.

This is an area in which the Portucel Group has invested heavily, and preservation of the habitats and species identified in its woodlands holdings has been integrated into its forest management procedures. An example of this is its work in protecting Bonelli’s eagle, a bird of prey classified as endangered in Portugal. The Group has collaborated with CEAI (Iberian Centre for Birdlife Research) on a LIFE Nature project, implementing protective measures on its properties.

The Group’s approach to biodiversity issues has in fact been the subject of case studies in four national and international publications, two of which were recently disseminated at the 10th Conference of the Parties (COP10) in Nagoya, Japan, in e-publications launched by the WBCSD (World Business Council for Sustainable Development) and by the WWF’s New Generation Plantations Project.

Biodiversity is also a central theme of the New Generation Plantations project coordinated by WWF International, in which the Group has been involved for close to three years. Plantations of this type preserve the integrity of ecosystems and the high conservation value of the woodlands, whilst assuring processes for effective stakeholder participation and contributing to economic growth and employment.

Annual Report 2010 12

The forests managed by the Group represent an important carbon sink, helping to reduce greenhouse gases in the atmosphere. The carbon retained each year by Group forests is equivalent to more than double the CO2 emissions from all its industrial facilities.

As part of its policy of social responsibility, the Group invested in 2010 approximately 3 million euros in wildfire prevention and fighting, by far the largest private contribution to forestry protection in Portugal. The Group’s actions benefit the country’s woodlands in general, as more than 85% of the work by the fire fighting organization to which the Group is the major contributor (Afocelca) is on land owned by third parties, providing valuable assistance to the National Fire Fighting and Civil Protection Service.

The Group’s commitment to Research & Development has been important for cutting-edge projects for improving the characteristics of eucalyptus and improving sustainable forestry management practices, ensuring the availability of raw material of a high standard for the manufacture of top quality paper.

In 2010, the Group completed in Portugal a capital expenditure plan worth 900 million euros, including approximately 200 million euros in investment in the energy sector. From 2011 onwards, the Group is expected to account for approximately 5% of all electrical power generated in Portugal, most of it obtained from renewable resources – forestry biomass and operating by-products.

The use of forestry biomass to generate renewable energy has become a distinctive feature of the Portucel Group’s sustainability strategy, allowing the Group to assert itself today as Portugal’s leading producer of “green energy” from biomass, a renewable source, accounting for 52% of generation of this type of energy in Portugal. Thanks to its investments in power generation, the Group recorded an increase of 47.7% in the electricity generated in 2010, accounting for 3.4% of total national output.

The sustainability strategy pursued by the Group in the field of renewables was rewarded by international recognition in 2010 in the form of one of the Green Energy and Biofuels Awards from Pulp & Paper International (PPI).

The Group’s commitment to renewable energy sources and best available techniques makes its plants a model of sustainability and eco-efficiency. In addition to increasing their output of renewable energy, the plants are examples of rational energy use and optimised energy efficiency in production processes. The Group’s industrial facilities reuse and reclaim more than 80% of the industrial waste produced.

The Group is responsible for generating skilled employment and specialist professional careers. At the end of the year, it had a direct workforce of 2,331 employees, as well as helping to create a much

Annual Report 2010 13

larger volume of indirect employment, especially in the forestry, logistical, engineering and industrial maintenance sectors.

The Portucel Group’s plans for development mirror its commitment to generating wealth and well- being in the regions in which it operates, helping to improve the quality of life and to preserve the environment. The Group pursues an active policy in the field of social responsibility, supporting and participating in a significant number of projects and voluntary initiatives geared to preserving our natural heritage and the life quality of local communities.

Annual Report 2010 14

Analysis of Results

Leading Indicators – IFRS

Year Year % Change (5) 2010 2009 2010 / 2009 Million euros Total sales 1,385.5 1,095.3 26.5% EBITDA (1) 400.2 222.2 80.1% Operating profits 277.8 132.1 110.3% Financial results ‐20.1 ‐7.5 166.1% Net earnings 210.6 105.1 100.4% Cash Flow (2) 332.9 195.2 70.6% Capex 95.5 505.4 ‐409.9 Net debt (3) 652.7 670.0 ‐17.2

EBITDA / Sales (%) 28.9% 20.3% ROS 15.2% 9.6% Equity ratio 16.4% 8.4% Net Debt / EBITDA (4) 14.3% 7.2% Equity ratio 48.8% 49.6% Net Debt / EBITDA (4) 1.6 3.0

(1) Operating profits + depreciation + provisions (2) Net earnings + depreciation + provisions (3) Includes market value of own shares held (4) EBITDA corresponding to the last 12 months (5) The percentage variation corresponds to figures not rounded up/down

Annual Report 2010 15

The Portucel Group recorded substantial growth in business in 2010, due in particular to increased paper output from the new Setúbal mill and the start-up of facilities in the energy sector as a result of the recent investment programme.

Turnover grew by 26.5%, to approximately 1.4 billion euros, with sales of UWF paper totalling close to 1.1 billion euros.

Average prices in the European market for uncoated woodfree (UWF) paper evolved favourably over the year, recovering from the low levels recorded in late 2009 and early 2010. The balance between supply and demand improved very significantly, especially during the first half of the year, and the industry achieved full take-up of capacity, with an occupation rate of 98%, thanks to a recovery in sales by quantity in European markets, exports and a net reduction in capacity, which stood at 180 thousand tons in the first half. The average paper price in 2010, measured by the benchmark index in the European market, the Foex PIX Copy B, stood at 814€/ton, up by 1.3% on the average price in 2009. Overall, the Group’s average sales price climbed by 4.2%, thanks largely to the sales policy adopted in non-European markets and the positive evolution of the EUR/USD exchange rate in the first half of the year. As a result, paper sales in value grew by approximately 29% in relation to 2009.

In the eucalyptus pulp (BEKP) market, conditions were excellent throughout the first half of the year, with strong demand and a sharp rise in prices in all markets. This situation changed in the second half, with a certain imbalance between supply and demand and a consequent reduction in prices, which nonetheless remained high compared with levels experienced in the previous year. The PIX index for hardwood pulp in euros was up by 58.8% over 2010, from 402 to 639 €/ton. The Group’s eucalyptus pulp business reflects the upward trend in prices, although it also incorporated the effect of a reduction in pulp quantities available for sale on the market, due to growing integration into paper at the new Setúbal mill. As a result, although sales were down by 42.4% in quantity, the value of pulp sales remained practically unchanged.

In the energy sector, the biomass-fuelled power stations in Cacia and Setúbal were in full operation throughout 2010, and the new steam turbine for the biomass cogeneration plant in Figueira da Foz went into production at the end of the third quarter.

Given that the overwhelming majority of the Group’s sales are to foreign markets, the total value of its exports was up by 25% to approximately 1.2 billion euros, accounting for more than 3% of Portuguese exports of goods.

On the cost side, although the Group benefitted from favourable trends in certain factors of production, notably the cost of chemicals, maintenance and logistical costs, it was obliged to import larger quantities of certified timber, which pushed up production costs for pulp. Personnel costs were also greater, due essentially to additional staff taken on for the new paper mill, and to variable

Annual Report 2010 16

remuneration for 2010.

In this context, the Group achieved consolidated EBITDA of 400.2 million euros, up by 80.1% from that recorded in 2009, resulting in an increase in the EBITDA / Sales margin of 8.6 pp.

As a result, operating income in 2010 stood at 277.8 million euros, representing growth of 110.3% from 2009.

During the period, the Group conducted a technical appraisal of its industrial assets, as recommended by International Accounting Standard (IAS) 16, in order to determine their remaining useful life. This analysis was carried out by an international firm of independent valuers, concluding that the remaining useful lives of the Group’s main assets are greater than previously considered, and the depreciation rates were reviewed accordingly, with effect as from 1 July 2010.

The Group recorded negative financial income of 20.1 million euros, as compared with a negative figure of 7.5 million euros in 2009. We should note, however, that financial income in 2009 benefitted from a positive contribution of 10.3 million euros from the reversal of interest relating to fiscal issues, and from a figure of approximately 9.3 million euros in foreign exchange gains. Results from financing operations improved significantly, due essentially to lower interest rates.

Net income in 2010 was also brought down by the change in the nominal corporation tax rate to 29%, corresponding to a base rate of 25%, plus a municipal surcharge of 1.5% and a state surcharge of 2.5%. The introduction of the state surcharge, part of the temporary measures in the Plan for Stability and Growth (PEC), as approved by Law 12-A/2010, also required remeasurement of all deferred taxes recognized in the 2nd quarter of 2010, although it is the company’s understanding that the majority of these will be reversed subsequent to the period covered by PEC, i.e. after 2013.

The value of tax payable by the Group is influenced by the use of part of the fiscal benefits for the new Setúbal paper mill, and by the reversal of provisions.

In this context, net consolidated income in 2010 stood at 210.6 million euros, representing growth of 100.4% in relation to 2009.

Financial Situation

At 31 December 2010, net interest bearing debt stood at 652.7 million euros, down by 17.3 million euros in relation to year-end 2009. This reduction in indebtedness highlights the Group’s excellent capacity for generating cash flow, given that at the start of the year the Group paid out dividends for 2009 of 63.3 million euros, and pressed ahead with the final phase of its investment programme, which in 2010 involved capital expenditure of 95.5 million euros, then going on to distribute reserves

Annual Report 2010 17

of 120 million euros at the end of the year.

Indebtedness

During the first quarter of 2010, the Group made two new bond issues, of 100 million euros each, maturing in up to 5 years, and contracted two loans, of 30 and 85 million euros, from the European Investment Bank, maturing respectively in 2021 and 2024. These operations permitted the Group to repay a bond issue of 300 million euros and to consolidate the maturity of its financial debt.

As may be seen in the following table, at year-end 2010, the Group presented gross long term debt of 733.1 million euros and debt of 91.3 million euros maturing in less than one year. These short-term payables are largely covered by the cash surpluses accrued by the company and by the finance facilities contracted but not used, placing the Group is a very comfortable liquidity position.

Indebtness Dec-2010 Dec-2009 Figures in Euros

Non-current Bond Loans 550,000,000 350,000,000 Bank Loans 183,125,000 74,375,000 Non-current debt 733,125,000 424,375,000 Expenses with the issue of bond and bank loans 3,428,093 3,389,946 Total non-current net debt 729,696,907 420,985,054

Current Bond Loans 0 325,000,000 Short term bank Loans 91,250,000 6,311,677 Total current debt 91,250,000 331,311,677

Cash and cash equivalents Cash 45,562 42,935 Short-term bank deposits 9,462,415 16,119,728 Other treasury applications 124,450,000 36,386,589 Total cash and cash equivalents 133,957,977 52,549,252

Total net debt 686,988,930 699,747,479

Treasury shares at their market value 34,263,719 29,792,574

Total adjusted net debt 652,725,211 669,954,905

The financial autonomy ratio stood at 48.8% at the end of December, whilst the ratio of Net Debt / EBITDA stood at 1.6, representing a significant improvement in relation to year-end 2009, which ratio stood at 3.0.

With its current level of net debt and strong cash flow generation capacity, the Group enjoys a robust financial situation, placing it in a leading position amongst the world’s leading companies in this sector and giving it the capacity to launch a fresh cycle of development.

Annual Report 2010 18

Development

With the start-up in the 3rd quarter of the steam turbine for the biomass cogeneration plant at Figueira da Foz, the Group completed a wide-ranging investment programme, worth approximately 900 million euros. In addition to this last project, the capex programme also included the new paper mill in Setúbal and two new biomass-fuelled power stations. Significantly, the final figure for investment in the new paper mill points to an actual cost of 525 million euros, 25 million euros below the original estimate.

Having completed this programme, the Group is considering investment alternatives in three distinct regions: Uruguay, Brazil and Mozambique.

As duly disclosed, the Group has signed a memorandum of understanding with the Government of Uruguay, setting out the terms and requirements regarded as essential for an investment project in the country. The future of this agreement will depend on developments in the logistical field, and especially the construction of a deep water port. These developments are beyond the control of the Portucel Group, and it is not possible to predict when they will be completed.

In Brazil, a framework agreement has been signed with the State of Mato Grosso do Sul, and work is proceeding on the studies needed to go ahead with an integrated forestry, pulp and energy project. Recent changes to the legal rules on access to rural land by companies in majority foreign ownership have created uncertainty as to the future of this project and caused unavoidable delays.

At the same time, after approval by the Government of Mozambique of a concession covering 173 thousand hectares in the province of Zambézia, the Group is currently engaged in a number of industrial feasibility and logistical studies in order to determine the conditions for going ahead with an industrial project combining forestry production, eucalyptus pulp and energy in that country . Work has also started on the necessary forestry trials, which will precede the start of planting in the concession areas.

Risk Management

The Group’s operations are exposed to a variety of financial risk factors: exchange rate risk, interest rate risk, credit risk and liquidity risk. The Group operates a risk management programme, focussed on analysis of financial markets, seeking to minimise the potential adverse effects on its financial performance.

Annual Report 2010 19

Exchange Rate Risk

Variations in the exchange rate of the Euro against other currencies can significantly affect the Company’s revenues in several ways.

On the one hand, a significant part of the Group’s sales is denominated in non-Euro currencies, mostly in USD but also in others, meaning that the evolution of the Euro against these currencies can have a significant impact on the company’s future sales. On the other hand, BEKP pulp prices on the international market are traditionally fixed in USD, meaning that variations in the Euro against the USD can have an impact on the Group’s future sales, irrespective or whether the sales are denominated in Euros or a different currency.

In addition, once the Company makes a sale in a non-Euro currency, it runs an exchange rate risk until it receives the price of the sale, unless it takes out hedges for this risk. This means that, at any given time, its assets include a significant sum in receivables exposed to exchange rate risks.

The Group has a commercial subsidiary in the US, Soporcel North America, with equity of approximately USD 25 million, exposed to exchange rate risk. Other than this operation, the Group has no investments in materially relevant operations abroad with net assets exposed to exchange rate risks.

Occasionally, and as it sees fit, the Group has recourse to derivatives to manage its exchange rate risk, in keeping with a policy which is reviewed from time to time and designed to limit the foreign exchange exposure associated with future sales, receivables and other assets denominated in non- euro currencies.

Accordingly, in order to hedge parts of its sales subject to the EUR/USD exchange rate risk as budgeted for 2010, the Group took out a set of hedges, in the form of zero cost collars, with a value of 75 million USD and maturing at the end of 2010.

In relation to its foreign exchange exposure on customer accounts, the Group maintained its policy of hedging its net exposure to USD and GBP at all times by contracting foreign exchange forwards for the expected maturities of these receivables.

In order to hedge its foreign exchange exposure on the equity of its commercial subsidiary in the US, the Group also contracted a foreign exchange forward for a value of 25 million USD.

Interest Rate Risk

The cost of the financial borrowing contracted by the Group is indexed to short term reference rates,

Annual Report 2010 20

reviewed at intervals of less than one year (generally six months for medium and long term debt), plus risk premiums as negotiated from time to time. This means that variations in interest rates can affect the Group’s results.

The Group has made use of derivatives, in the form of interest rate swaps, in order to fix the interest rate on its borrowing, within given parameters. The various swaps contracted in 2005 matured in 2010, and at the end of the year there were no interest rate hedges in force.

Credit Risk

The Group is subject to risk on the credit it grants to customers, and has adopted a policy of managing this exposure by keeping it within set levels, through the negotiation of credit insurance with an independent specialist insurer.

Sales which are not covered by credit insurance are subject to rules which assure that they are made to customers with an appropriate credit record and/or are covered fully or partially by bank guarantees. Any uncovered exposure is kept within reasonable limits approved by the Executive Board.

As a result of the strict credit control policy followed by the Group, bad debts were materially negligible in 2010.

Liquidity Risk

In view of the medium/long term nature of its investments, the Group has sought to structure its debt in a form that gives priority to contracting long term finance, and to refinancing short term debt.

As stated above, at year-end 2010, the Group had gross long term borrowing of 733.1 million euros and debt maturing in less than one year of 91.3 million euros. This short term liability is easily covered by surplus cash flow accrued by the company and credit facilities contracted but not used, meaning that the Group enjoys a very comfortable liquidity position.

Considering the structure of the debt contracted by the Group, with maturities matching the assets being financed, the Group is confident it has assured the capacity to generate the future cash flows needed to discharge its liabilities, to guarantee capital expenditure in line with its medium/long term plans and to provide shareholders with returns at the levels traditionally provided by the Company.

Annual Report 2010 21

2. Capital Markets and Share Price Performance

Capital Markets

The shares of companies in the pulp and paper industry performed well in 2010, especially in Europe, recording substantial gains over the course of the year. The HX Paper & Forest index, featuring the shares of the three main Scandinavian companies in the sector, was up by approximately 56% over the year. This performance was in contrast to that of the main companies in Latin America, where some of the main Brazilian producers recorded significant losses in their share prices.

The main European stock exchanges ended 2010 with no single trend emerging. The London and Frankfurt exchanges recorded gains respectively of 14.0% and 16.1%, whilst the exchanges of outlying countries were down by 17.4%, in the case of the IBEX 35, and 10.3% in the case of Portugal’s PSI20. The French CAC 40 index dropped some 3% whilst the Euronext 100 and Eurostoxx 50 indexes held relatively stable.

In this environment, Portucel’s shares ended the year up 15%, recording the third largest gain on the Lisbon stock exchange index. The lowest price for the year was 1.824€/share during the 1st quarter (on 25 February), after which the shares moved consistently upwards, reaching a high of 2.415€/share (on 20 December). Average trading stood at 480 thousand shares per day.

At the end of November, after a period during which they were unavailable for trading, a further 230 250 000 shares, representing 30% of Portucel’s share capital, were admitted for trading on Euronext Lisbon. The trading restriction had been imposed by Resolution of the Council of Ministers no. 194/2003, of 30 December, concerning the 2nd phase of Portucel’s privatization, imposing a five-year restriction on trading in the shares acquired by Seinpart SGPS, SA. On expiry of this period, these shares were admitted to trading, without any change taking place in the shareholder structure of the company.

Annual Report 2010 22

Portucel vs. European Indexes in 2010 (31/12/2009 = 100) 140

120

100

80

60

40 2009 2010 2010 2010 2010 2010 2010 2010 2010 2010 2010 2010 2010 2010 ------2 1 2 3 4 5 6 7 8 9 0 1 2 2 1 0 0 0 0 0 0 0 0 0 1 1 1 1 31- 28- 25- 25- 22- 20- 17- 15- 12- 09- 07- 04- 02- 30-

Portucel IBEX 35 PSI20 CAC 40 Footsie

Million Portucel Monthly Average Share Price and Volume shares €/share

16,0 2,4

14,0 2,3 12,0 2,2 2,1 10,0 2,0 8,0 1,9 6,0 1,8 4,0 1,7 2,0 1,6 0,0 1,5 0 0 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1 1 1 1 1 1 1- 2- 3- 4- 5- 6- 7- 8- 9- 0- 1- 2- 0 0 0 0 0 0 0 0 0 1 1 1 ------31 28 31 30 31 30 30 31 30 31 30 31

Volume €/share

Annual Report 2010 23

3. Market Performance

Economic Environment

After the economic stimulus measures adopted by governments, in particular in the United States and the Euro Zone, geared essentially to recapitalizing the banks and opening up new credit facilities for the economy, in order to soften the impact of the financial crisis of 2008 and 2009 on the real economy, borrowing terms were aggravated for the European countries facing the largest problems in terms of foreign debt and public deficits.

The member countries of the Euro Zone ceased to be regarded as a single undifferentiated whole by investors in sovereign debt, who started to demand interest rates based on individual risk assessments.

Greece was the first country to admit, in April, that it was unable to service its debt and to request the intervention of the International Monetary Fund.

This was followed by a series of measures adopted, or instigated, by the main European leaders – creation of a Stabilization Fund, increased intervention by the European Central Bank in the sovereign debt market and the launch of successive austerity measures.

Later in the year, in November, it was Ireland’s turn to ask for help from the European Financial Stabilization Fund and the IMF in order to meet the costs of intervention in the financial system.

However, the adoption of emergency procedures failed to calm the markets in their assessment of other countries in the Euro Zone, stoking fears that other countries could also be pulled under.

The European Union has taken the line that public accounts need to be kept under tighter control, seeking to apply on the ground measures requiring member states to comply with the targets set.

This caused a divergence in economic growth between the outlying economies and the more developed economies, the former struggling under the pressing need to consolidate their budgets, whilst the latter, led by Germany and France, recorded relatively sound levels of growth.

In the United States, where fears surfaced of a double dip recession, the economy eventually picked up in the second half of the year, although conditions in the labour market remained difficult.

At the same time, the changed array of forces in Congresses obliged the administration to back up on

Annual Report 2010 24

its fiscal reforms, at a time when the country was facing the largest budget and trade deficits in its history.

China established itself in 2010 as the world’s second largest economy, at a time when it is anticipated that the United States may impose trade sanctions, accusing it of manipulating the yuan exchange rate and thereby severely penalizing the US economy.

China has been increasing its position as lender to the more indebted western countries, holding the largest portfolio of US treasuries and keeping most of its extensive currency reserves in dollars.

Mozambique, which is one of the countries to which the Portucel Group is looking for its long term development, experienced a degree of social instability in September, with unrest in Maputo in reaction to the government’s decision to increase the price of essential goods and fuel, in a measures made necessary by commitments made to the IMF. The Mozambican government eventually gave in and froze the increases. Although this measure came as a surprise to analysts, the IMF’s December report considers that the programme for maintaining economic growth remains valid and is progressing as planned, including acceleration of public spending, with full access to the foreign lending as previously agreed.

The sovereign debt crisis in Europe contributed to a significant depreciation of the euro against the US dollar, bringing it down from 1.45 at the start of the year to below 1.20 USD at the end of the first half. Uncertainties as to the economic performance of the United States, combined with positive overall growth in the Euro Zone, caused the European currency to rally, returning in October to values over 1.4 USD.

In contrast with the previous year, the currencies of the main countries outside the Euro Zone competing with the Portucel Group on the international markets did not record fluctuations capable of significantly affecting their competitiveness. The Brazilian real and the Chilean peso again evolved in line with the US dollar, whilst the Swedish krona held steady against the Euro.

Annual Report 2010 25

Paper

Market

Demand for uncoated woodfree (UWF) paper grew by 6% in Europe over 2009 – although still failing to make good all the losses experienced in 2009 – and was down again, by 1.5%, in the USA. The European and US markets are central to the Group’s commercial strategy, and are the main centres of consumption of the type of paper produced by the Portucel Group.

Growing demand in Europe, combined with a net reduction of approximately 150 thousand tons in production capacity at the end of the year, allowed the industry to improve its average occupation rates by almost 8 percentage points, despite the start-up of the new Setúbal mill. The industry as a whole recorded an occupation rate of more than 92%, whilst the Portucel Group again operated at full capacity.

The market situation as described above, combined with strong pressure on various cost components, especially from BEKP pulp, allowed the Group to hike its prices on four occasions in the European market during 2010, between the first and fourth quarters.

Overseas markets were subject to significant pressure from demand, especially during the first half of the year, resulting in consecutive price adjustments, which in turn led to growth in exports by European producers, and constrained imports into European markets.

The US market also presented a recovery in the average prices in USD/t, with the main price index for office stationery (in USD/t) rising 2.7%, on average, from 2009. This recovery was particularly clear in the first half of the year, when local industry benefitted from a substantial increase in occupation rates, to around 90%, but trailed off slightly in the second half.

Special attention should be drawn to the growing importance of the Portucel group on non-European markets, and in particular the large share of total European exports of UWF paper to these markets represented by the Group’s sales. In 2010, this share reached approximately 59% of exports to North America, 55% to Africa, 39% to the Middle East, 37% to Latin America and 2% to Asia.

Annual Report 2010 26

Performance

Paper sales totalled 1.4 million tons, representing growth of 24% in relation to 2009. This performance was achieved thanks to double digit growth in all world regions and expansion of sales operations into new geographical areas. The Group enjoyed growth of approximately 20% in Europe and 30% in the United States, whilst consolidating its position as one of Portugal’s main players in the international markets. In the European market alone, the Group expanded its market share by approximately 190 thousand tons.

The Group successfully placed on the market all the paper available, taking advantage of the moderately positive situation in Europe and the excellent conditions on overseas markets. This was achieved by means of careful management of the market and product mix, which led to improvements in prices.

The overall growth in sales in quantity was driven in part by strong performance in sales of cut-size and premium products. Significantly, premium products continued to account for a large proportion of the Group’s sales, in a context of rapidly expanding sales in quantity.

Prices

As reported above, sales prices for UWF paper in Europe started move upwards in the second quarter of the year, with the average for the PIX “A4-copy B” index up by 1.3% on the average for 2009.

Despite a substantial increase in sales by quantity, the Group’s sales price in Europe kept pace with market trends. However, thanks to the price environment on the overseas markets, combined with the favourable USD/EUR exchange rate, the Group achieved growth in its average price of approximately 4.2%.

Annual Report 2010 27

Evolution of the Average PIX Price–“A4--Copy B “ €/ton 900 880 860 840 820

800 780 760 740 720 700 2004 2005 2006 2007 2008 2009 2010

Branding

Thanks to the focus on developing an innovative branding strategy designed to foster the growth of its paper business over the years, the Group has built up an ever stronger international presence for its brands, once again achieving a leading position in European markets in 2010.

The leading independent study in the sector (Cut-size Mill and Mill Brand Positioning & Image Survey 2010, by EMGE Paper Industry Consultants), which considers the wholesale and retail trade in paper and office products throughout Western Europe, once again confirmed Navigator as the highest scoring brand for spontaneous awareness and the leader in terms of brand performance and brand reputation, calculated as a weighted average of various technical and marketing attributes. In addition to Navigator, the Discovery, Pioneer, Inacopia and Explore brands were also highly placed on the list of the top brands in terms of brand performance.

Strong growth in sales quantities for mill brands, up by more than 20%, has enabled them to continue to account for 60% of the Group’s total sales, a figure unrivalled by other major manufacturers.

Special attention must be drawn to Navigator, the world’s top-selling brand in the premium office stationery segment, which enjoyed a worldwide growth of 13% and 9% growth in Europe when compared to 2009, and to Soporset, the leading brand in the printing segment in Europe, which expanded its sales quantities by 19%.

Annual Report 2010 28

Navigator www.navigator-paper.com

Navigator, the world’s best selling premium office stationery brand, unveiled its new image, representing the culmination of a process lasting two years and involving studies of end consumers in small, medium and large companies in six of the main European markets.

The new Navigator image has been developed to offer updated, more appealing packaging and a clear sense of the brand’s distinctiveness, in line with ambitious plans for growth in the more than 90 countries where it is already established and the new international markets in its sights.

The brand’s attributes have been repeatedly acknowledged by consumers and reflected in the findings of independent research. The Brand Equity Tracking Survey – Office Paper, conducted by Opticom International Research AB, classifies Navigator as the only brand with outstanding performance on all assessment criteria – awareness, quality perception and loyalty. Another study conducted annually by EMGE – Paper Industry Consultants in the wholesale/retail sector confirms Navigator as the leading European brand, in terms of both spontaneous awareness and brand performance, the weighted average of various technical and marketing attributes.

This exceptional performance over recent years has earned Navigator the title of "World Best Selling Premium Office Paper".

Highlights in 2010

• 9% growth in sales in Europe; • 5th global promotion, with hundreds of thousands of participants all over the world; • Navigator & You campaign, encouraging consumers to record a video or take a photograph showing their connection with the brand, resulting in dozens of videos and hundreds of photographs received; • The brand obtained the right to use the European Union Ecolabel; • A strong presence by Navigator at the main European trade fairs, including Paperworld and Big Buyer.

Annual Report 2010 29

Discovery www.discovery-paper.com

Discovery is a unique paper brand which combines superb performance with eco-efficiency. Top quality raw materials and cutting-edge technology come together to produce paper with a lower grammage, but improved performance, jam-free in the most demanding equipment. The result is unbeatable value – more for less.

Discovery presents outstanding environmental credentials, as its lower grammage makes it possible to reduce consumption of resources in production and to minimize waste, in comparison with standard 80g/m2 paper.

Investment in the production process over recent years has generated significant efficiency gains in water and energy consumption, CO2 emissions and use of fossil fuels.

After a long and painstaking process completed in 2010, Discovery has changed its image, with new packaging and communication materials as from the first quarter of 2011. The new image is designed to convey the product’s positioning more directly, highlighting its main virtues – use of less resources and jam-free performance. Market research in the 6 main European markets suggests that the new image will be a success with consumers, reinforcing our confidence in the work carried out.

Highlights in 2010

• Growth in sales of 20% in Europe; • Sales to more than 60 countries; • A high ranking for Brand Loyalty and Quality Perception in the Opticom Survey.

Pioneer www.pioneer-paper.com www.pioneer-graphic.com

Pioneer is a premium office stationery brand which in 2010 revamped its packaging, in order to update and brighten its image.

Whilst keeping the female figure, which gives the brand its human touch and evokes the real and aspirational mindset of the target segments, the refreshed look underlines the brand’s concept and

Annual Report 2010 30

positioning: dynamism, elegance, professionalism and success – attributes with which the female consumers who choose Pioneer paper identify themselves.

In the premium office stationery segment, the Pioneer brand now features distinctive names and images for each of its products, making them immediately identifiable and guiding consumers toward the uses of each product. So each of the six designs for the range will establish its own market presence, with the image clearly matching the respective product name: Special Inspiration (80gsm), Perfect Inspiration (90gsm), Distinct Inspiration (100gsm), Outstanding Inspiration (110gsm), Exclusive Inspiration (160 gsm, launched in 2005) and Shi Zen (80gsm wth 30% recycled fibre).

The new packaging refers more clearly than in the past to the partnership with the breast cancer charity Associação LAÇO, a cause to which our female consumers have attached great importance. This partnership reflects the Pioneer stance on social responsibility and will help develop closer ties with our local communities, a crucial factor in the development of the Group and of its distinctive and innovative brands.

Marketed in more than forty countries, Pioneer enjoys a high level of brand awareness and has presented excellent results in terms of performance and printing quality.

The Pioneer Graphic range has been especially developed to meet the needs of graphic artists and designers, featuring a number of solutions geared to the specific needs of the printing industry.

In tune with the Pioneer brand, these printing papers are also marketed using an original and sophisticated positioning and communication, and have established themselves as a benchmark for the main European ranges of UWF paper.

Highlights in 2010

• 11% growth in sales in Europe; • International relaunch for the entire brand image and communication in the premium office stationery segment; • Increased and consolidated support for Laço, a breast cancer charity promoting early diagnosis of the disease.

Annual Report 2010 31

Inacopia www.inacopia-paper.com

Inacopia was the first European office paper to be produced from Eucalyptus globulus pulp, and is today a well established brand with a reputation for high quality standards.

With a broad range consisting of a line of premium quality products and another of standard quality products, Inacopia offers a solution for each type of application, depending on the document requirements. The Inacopia brand added a new product in 2010, Inacopia Office 70g/m2, further extending its range in a market segment which has recorded rapid growth in Europe – grammages of less than 80g/m2. This product also focuses its communication on sustainable forest management and the intrinsic quality derived from the use of Eucalyptus globulus.

Highlights in 2010

• 34% growth in sales; • Sales to approximately 40 countries; • Launch of Inacopia Office 70g/m2, a product which conciliates superb performance with environmental concerns.

Target www.target-paper.com

The Target brand features a warm, contemporary feel, with a range which offers the ideal choice for consumers of every type, including professional use in large volume equipment, internal and external corporate communication and home use. The brand’s distinctive features are its ready-to-print stance and the offering of different office stationery products for distinct end uses. The range includes paper for colour-intensive applications (Target Personal), internal corporate applications (Target Corporate) and document production (Target Professional). For the printing segment, the range also offers two high quality products: Target Plus Offset and Target Plus Preprint.

Annual Report 2010 32

Soporset www.soporset.com

Soporset remains the leading UWF brand in the printing segment in Europe. Unrivalled performance and excellent printing quality are the key values in the Soporset brand. According to an EMGE study, these two characteristics explain its awareness levels and its positioning as the offset paper most used by European printers.

Highlights in 2010

• 19% growth in sales; • Sales to approximately 70 countries; • Marketing promotions and events organized throughout Europe using the brand’s communication concept – motor sports – offering customers a unique, excitement-packed experience.

Inaset www.inaset-paper.com

Tradition, experience and trust are the three central values around which the Inaset brand is positioned. Inaset combines the tradition of a pioneering brand with the spirit of innovation which it has retained over more than three decades, and which has made it a benchmark amongst the best offset papers worldwide.

The Inaset range has focussed on educating its customers, organizing a number of training activities over the course of 2010. Despite the severe crisis in the printing industry, the Inaset brand has maintained high levels of growth, thanks to customers’ loyalty to the brand.

Highlights in 2010

• 33% growth in sales • Sales to approximately 30 countries.

Annual Report 2010 33

Explorer www.explorer-paper.com

The Explorer brand is unique in its positioning, based on aspirational values, allowing it to make a closer emotional connection with consumers by identifying itself with adventure sports. Featuring high quality standards, Explorer offers its users exceptional results, especially on documents with intensive use of colour, permitting more effective communications and assuring high levels of impact on the reader.

The Explorer range is offered today in four grammages – 80g/m2 ; 90g/m2 ; 100g/m2 ; 110g/m2 – and also as a product which combines 30% recycled fibres with high quality virgin fibres (Eucalyptus globulus), Explorer iCare. The range also includes two products for the printing industry, Explorer Premium Offset and Explorer Premium Preprint, available in different grammages and formats.

Highlights in 2010

• Distribution of the brand to new markets, with sales now to 26 countries; • 27% growth in sales.

Pulp

Developments in 2010 in the world eucalyptus pulp market divide into two distinct phases. The first half of the year continued a trend, already established in the previous six months, of monthly price increases in all markets. The natural disaster which occurred in Chile in February, taking capacity of approximately 900 thousand tons off the market, combined with production losses estimated at some 500 thousand tons due to timber shortages caused by bad weather in various regions, accompanied by lively demand in significant areas of the world, contributed decisively to positive market performance in the first half of the year.

The situation changed in the second half, when output from Chile, Indonesia and Canada returned to the market, and when a new mill started up in China, at the same time as a sharp slowdown in demand in the Chinese market. China’s pulp imports were down by 16.9% in 2009, a figure which rises to 25.9% for short fibre. However, even so, Chinese demand in 2010 was still 20% higher than in 2008.

This situation lead to a gradual increase in stocks over the second half of the year and a degree of deterioration in the balance between eucalyptus supply and demand. Prices accordingly stopped rising, but continue to offer healthy returns.

Annual Report 2010 34

Monthly prices: PIX – BHKP Eucalyptus / Birch

1000

900 PIX USD 800 PIX €

700

600

500

400

300

200 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10

As in the previous year, steep appreciation against the US dollar, and also the euro, of the currencies of major market players, such as Brazil, Chile and Uruguay, and of the Canadian dollar, significantly undermined the competitiveness of these producers, and helped to push up and then sustain USD prices at interesting levels, constituting one of the main driving forces in the industry.

Performance

Output of bleached eucalyptus pulp (BEKP) totalled approximately 1.3 million tons in 2010, unchanged from the previous year.

As expected, increased industrial integration as a result of the start-up of the new Setúbal paper mill meant that the Group’s pulp sales were limited to the output from the Cacia pulp mill.

Practically all sales were made on the European markets, with a very high percentage going to the special papers segment, which grew by 30 percentage points in relation to the previous year. The Group accordingly kept to its established commercial policy, giving priority to these markets and this segment for its pulp sales, insofar as they concentrate the producers of papers with the highest levels of value added and at the forefront of technological and environment advances.

Logistics

In 2010, the Portucel Group dispatched 1.75 million tons of pulp and paper to more than 100 countries across five continents.

Annual Report 2010 35

The bulk of these products continued to be transported by sea (53.1% of the 2010 volume), representing an increase in relation to 2009. Significantly, the Group is the largest exporter of containerized cargo in Portugal, and probably in the Iberian Peninsula.

The Group recorded a positive evolution in the dispatch costs for its products, thanks to operations designed to optimize and streamline logistics.

Annual Report 2010 36

4. Industrial Operations

The financial year of 2010 was marked by a substantial increase in paper output by the Portucel Group, which rose to 1.54 million tons thanks to the output from the new Setúbal paper mill.

The Portucel Group’s industrial facilities feature the highest standards of technology and are constantly adapted to the best available techniques in a process which culminated with the start-up of the new Setúbal paper mill, where the Group sought to install the latest technological developments available worldwide. This contributed decisively to keeping the Group in 2010 at the forefront of the production of top quality UWF printing and writing paper.

The achievements of the Group’s other paper production units include excellent performance at the Setúbal mill, which recorded a new record of approximately 311 thousand tons, and at the Figueira da Foz mill, which maintained its high levels of output.

In eucalyptus pulp operations, record output was also achieved by the Setúbal pulp mill, up by 1.6% in 2009.

Overall, the Group’s pulp output was at the same level as previous years, with the plants making their usual annual maintenance shuts, essential for assuring increasingly high performance standards..

The growing integration of the pulp manufactured in Setúbal in the production of paper at the new mill caused a significant reduction in direct sales of eucalyptus pulp on the market, and the majority is now sourced from the Cacia plant.

As a whole, all the Group’s production units, and especially its paper mills, operated at full capacity, recording high levels of overall efficiency.

Production costs at the paper mills were pushed up by high pulp prices, although other factors performed well, in particular the cost of energy and chemicals.

In pulp production, the Group observed a tentative inversion of the previous year’s downward trend in variable costs, caused essentially by the rising cost of importing timber.

Operation at full capacity, combined with good performance by the combined cycle natural gas cogeneration plants, contributed to excellent energy performance, and the Group saw the cost of the energy component of its products fall thanks to highly efficient co-generation and intensive use of biomass as an energy source.

Annual Report 2010 37

A project designed to improve production efficiency was successfully concluded in 2010. New opportunities for improving efficiency have in the meantime been detected, leading to the launch of another project at the Group’s plants, which started up in late 2010.

Paper Prodution on Winders (thousand ton)

1.800 25,2% 1.500 8,2% 1.200 900 600 300 0 2008 2009 2010

Total Prodution of Pulp and Paper (*) (thousand tons)

2.900 2.800 2.700 11,1% 2.600 4,4% 2.500 2.400 2.300 2.200 2008 2009 2010

(*) Paper production figures refer to winding machines

Maintenance activities were carried out over the period in keeping with pre-set parameters by the Group’s own maintenance company (EMA 21), which extended its operations to the new Setúbal paper mill and the new power stations.

Maintenance costs were down by 3.8% compared with the previous period, considering the same set of facilities.

Annual Report 2010 38

Capital Expenditure Projects

The most significant investments undertaken by the Portucel Group over this period were centred on the energy sector and on concluding the new paper mill project.

In the energy sector, the financial year of 2010 saw the conclusion of the new steam turbine for biomass-fuelled co-generation at the Figueira da Foz plant. This facility, which started up in the 3rd quarter, has made it possible to increase power generation at the Figueira da Foz complex and to take full advantage of the operating conditions of the recovery boiler, equipping the complex with one of the largest industrial turbines in Portugal.

Another important achievement was the operation at full capacity over the period of the biomass power stations in Cacia and Setúbal, which had started up in December 2009.

These plants have rated capacity of 12.5 MW and have made a decisive contribution to developing the Group’s renewable energy component, boosting its position as Portugal’s leading producer of “green energy” from biomass.

The financial year saw the completion of the investment programme centred on the Group’s new paper mill in Setúbal. This process involved a series of small CAPEX projects to optimise evolution of the learning curve for the system as a whole and – most importantly – an increase in production capacity for small formats as envisaged in the budget and overall business plans.

A second small format line (A4) started operation in the first week of June, similar in all respects to the first line already in place at the start-up date of the mill, increasing production capacity to 350,000 tons/year for this type of format. This line features a cutter with a width of 3,400 mm, able to cut 16 reams simultaneously. The cutter is integrated with two automatic finishing lines, which carry out the processes of reaming, labelling of reams, packaging, labelling of boxes and palletizing.

In connection with this new line, the plant also went ahead with a complementary investment in the respective AGVs - Automatic Guided Vehicles which transport the reels to the cutter and collect the pallets from the line.

Annual Report 2010 39

5. Resources and Supporting Functions

Sustainability

Few industries can boast a track record in sustainability to match that of the European paper industry in general, and of the Portucel Group in particular.

The Portucel Group’s success story speaks for itself. Its operations are based on a renewable raw material (forestry plantations) which is managed in a certifiable sustainable manner. It produces energy from renewable sources (without emissions of fossil CO2). It has very significantly cut its liquid and gas emissions to well beyond the legal requirements. It has drastically minimized its water use. It reuses and reclaims more than 80% of the industrial waste it produces. It generates wealth and well being for its workforce and other stakeholders. And it produces an environmental friendly product, which plays an essential role in culture and learning, as well as being recyclable.

With these credentials, and by keeping tight to the principles of the Sustainability Policy (approved and published in February 2005), the Group is an active proponent and campaigner for sustainable development.

In this context, the Portucel Group maintained in 2010 its membership of the WBCSD - World Business Council for Sustainable Development (firstly joined in 1995) and served as chairman during the period of BCSD Portugal – Business Council for Sustainable Development, which it co-founded in 2001.

The Group’s sustainability policy constitutes a firm commitment, involving all sectors of the company. One of the Group’s main initiatives in this field was the organization of an International Biodiversity Seminar, held in Lisbon in November 2010, with the participation of international specialists in the field of ecosystem development and related business issues.

The Group continues to have an active Environmental Board, comprising five respective academics, specializing in fields ranging from forestry through to environmental conservation, as well as engineering and manufacturing processes.

Annual Report 2010 40

Forestry

Sustainable Management

The financial year of 2010 was clearly marked by the approval of the Group’s Forestry Management Plan (FMP) by the Portuguese authorities and also by the Group’s busy participation in the activities commemorating the International Year of Biodiversity, as declared by the United Nations. These activities involved not only management work in the field, but also support for third party initiatives, reporting, communication and awareness rising.

Another important development was the incorporation of the Group’s expertise and experience in woodlands management into a Code of Good Forestry Practice, a new benchmark for its operations in any geographical context, not limited to Portuguese territory. The publication of this code at the end of the year paved the way for the celebrations in 2011 of the International Year of Forests, setting out ground rules for good management practices, in line with the requirements of the main forestry certification programmes. The code will be distributed both internally and externally, complementing the policy of disseminating expertise and good practice through the Group’s “Technology Showcases”. There are currently six technology showcases allowing forest landowners, service providers and Group suppliers to learn about the results from the good practice on show and encouraging them to adopt them.

The success of these initiatives reflects the Group’s high profile as a promoter of better practices in the sector and its importance as a forestry producer. In effect, at year-end 2010, the Group’s woodlands assets were spread over 161 Portuguese municipalities and consisted of 1,409 management units, subdivided into some 6,700 plots, occupying a total area of 120 thousand hectares, including 87.4 thousand hectares of eucalyptus (72%) planted to supply the Group’s pulp mills. The certification of these assets under the FSC - Forest Stewardship Council system and PEFC - Programme for the Endorsement of Forest Certification schemes was confirmed in 2010, reflecting the group’s commitment to responsible management of its forestry resources.

The Group has been a driving force behind the expansion of the forest certification process in Portugal, through cooperation agreements signed with forestry producer organizations and awareness raising campaigns aimed at landowners. The Group has been a pioneer at global level in paying a premium on purchases of certified timber, prompting to a reference to Portugal in the “Forest Products 2007/2008” report from the FAO (Food and Agriculture Organization).

In 2010 began the works to doubling the capacity and modernising the nurseries at the Espirra estate, in keeping with studies conducted into increasing the facility’s production capacity and in order to respond to the needs of growing internal consumption and increased demand for certified plants from

Annual Report 2010 41

private forestry operators. Overall, Viveiros Aliança recorded 15% growth in operations in 2010 in relation to the previous year. Of the total output of eucalyptus saplings, 60% corresponds to cloned plants. Some two thirds of these cloned output are used in the Group’s own plantations, and the remainder goes to private operators, under cooperation agreements signed with forestry producer organizations and other bodies. The number of clones produced at the nurseries was the same as in the previous year.

The area planted by the Group was approximately 68% superior to previous year. This growth was achieved despite the difficulties in the licensing process for projects, which involves a number of public authorities, and reflects the Group’s efforts to use new areas and to reforest the ones currently under management, in order to maximise the production potential of its woodlands, by using the best genetic materials and best forestry practices. The growth in new plantations was also helped by the climatic conditions, which were in general favourable to planting, although excess rainfall in the final month of 2010 created conditions which prevented any further areas from being reforested.

Also in 2010, the Group undertook a series of maintenance operations in approximately 19,100 hectares of forest, controlling undergrowth and selecting eucalyptus shoots, as well as maintenance work on 4,600 kilometres of paths and fire breaks in the woodlands under the Group’s management. Maintenance fertilization was also carried out over approximately 9,020 hectares of eucalyptus.

Although eucalyptus timber for pulp and paper production is the main product of the Group’s forests, the company has not neglected other products and activities, diversifying the use and benefits from its agro-forestry holdings. Other products include cork (31.59 thousand arrobas), wine (84 thousand litres), resin (more than 8.5 thousand bicas), game, pasture and others.

Forest Certification and Biodiversity Management

Continuing its commitment to forest certification, as a distinctive feature and guarantee of the responsible sourcing of its products, the Portucel Group maintained in 2010 both its certifications obtained in previous years from the FSC - Forest Stewardship Council, in force since 2007, and under the PEFC - Programme for the Endorsement of Forest Certification schemes, in force since 2009. In managing the forestry assets in its charge, the Group has shouldered a series of environmental and social concerns which are incorporated in the decision-making process for the technical and business objectives it pursues. The Group sees this as the way to strengthening its presence in an international market which is increasingly demanding as to the sourcing of raw materials of products, and to responding to the legitimate concerns of society.

The Portucel Group’s PEFC certificate - SATIVA-2010/GFS001 - is the first licence issued for use of the PEFC brand for forest management in Portugal, covering all the assets under the Group’s management and a range of products, from eucalyptus timber through to the production of pulp and

Annual Report 2010 42

paper, the Group’s main products, as well as pine timber, cork and pine cones. The FSC certificate - SA-FM/COC-001785 - already covers 99% of the Group’s holdings and its eucalyptus timber and cork.

The Portucel Group continued in 2010 to work alongside the bodies in charge of national FSC and PEFC initiatives in promoting certification processes to forest producer organizations. In order to encourage certification by the landowners and producers who supply approximately 80% of the raw material for its mills, the Group has since 2007 instituted cooperation arrangements with a number of organizations directly related to forestry production: CAP – the Confederation of Portuguese Farmers, Forestis – The Portuguese Forestry Association, Fenafloresta, the Forest Forum and UNAC – the Union of Mediterranean Forests.

At the same time, the Group has organized training and information campaigns on the topic of forest certification in Portugal, highlighting the benefits of certification and warning of the risks of not participating in the process, at the same time as sharing its experience of how to meet the certification requirements. This has included making Group properties available to serve as demonstration areas for implementation of the approach adopted for FSC Principle 9, concerning Forests of High Conservation Value. This demonstration was part of the agenda of the national working party for Interpretation of High Conservation Value Forests and was aimed at the different parties with an interest in the Portuguese initiative. It was attended by representatives of the production sector, environmental NGOs, research centres, consultancy firms and certification bodies.

In another major development regarding certification, one of the Group’s representatives was chosen to sit on the PSC - Policy and Standards Committee of the international FSC, a body set up in early 2010 to support the FSC’s directors in the decision making process. The Group’s delegate represents the northern economic sub-chamber.

Progress was also made in 2010 in what regards biodiversity conservation, with the Group collating systematic information on the wildlife to be found on its holdings, in addition to taking an active part in activities marking the International Year of Biodiversity. Biodiversity was also the central focus of the Group’s sustainability report for 2008-2009 and an international seminar was organized on the theme “Biodiversity. A value with a future”, attracting some of the leading experts in the field. Wildlife conservation and management with a view to economic, social and environmental progress formed the starting point for a debate designed to raise the awareness of key organizations, in the public and non-governmental sectors, of the value and importance of biodiversity conservation to the country as a whole, and to forest-based industries in particular.

Also in 2010, the Portucel Group was represented by its CEO at a symposium in Paris organized by EpE - Entreprises pour l'Environnement and WBCSD. This event was aimed at the business sector and sought to demonstrate the involvement of leading European companies in the conservation of

Annual Report 2010 43

biodiversity. In its contribution to this event, the Group focussed on the dynamic between forest management and biodiversity, using as an example the strategy of integrating biodiversity conservation into its forest management model, and the concrete results achieved by the Group in this field.

Aware that the operations involved in forest management and industrial production can have direct or indirect potential impacts on habitats or species, the Group has integrated biodiversity conservation into its business model, a strategy whose adoption underpins one of the pillars of certified forestry management.

Management of the Group’s woodlands has therefore involved considerable work at local level in assessing, managing and monitoring wildlife. In late 2010, biodiversity assessments were conducted covering most of the Group’s properties, identifying some 12,000 hectares classified as being of conservation interest. This work also included drafting manuals for assessing biodiversity and conservation action plans covering more than 40% of the area under Group management. The approximately 36 different habitats identified in the Group’s management units were found to be representative of the habitats classified by the National Network of Protected Areas and EN2000 (Rede Natura), in addition to other habitats extending over significant areas, in particular cork forest (montado) and woodlands with evergreen quercus species, such as cork oaks and holm oaks, in addition to riverside habitats.

Significantly, the Group’s approach to biodiversity issues has in fact been the subject of case studies in four national and international publications, two of which were recently disseminated at the 10th Conference of the Parties (COP10) in Nagoya, Japan, in e-publications launched by the WBCSD (World Business Council for Sustainable Development) and by the WWF’s New Generation Plantations Project. The latter is entirely devoted to the theme of plantations, and is led by WWF International with partners in the form of paper sector companies from different continents and regional WWF delegations. As part of the NGP project, the Group also organized an international workshop on “New Generation Plantations and Responsible Forest Finance”, designed to define collective approaches to sustain an industry based on more sustainable plantations and the sector’s transition to a more environmentally and socially responsible model.

Another example of good practice in the management of the Group’s woodlands, in the field of biodiversity conservation, concerns the protection of Bonelli’s eagle, a bird of prey classified as “threatened” in Portugal, as part of a partnership with the Iberian Birdlife Research Centre (CEAI).

The integration of these different issues relating to biodiversity conservation into the forest management model has formed the basis for implementation of the Business and Biodiversity philosophy adopted in late 2007, in the light of the cooperation agreement signed with ICNB (Institute for Nature and Biodiversity Conservation) and the Group’s involvement in the Countdown 2010

Annual Report 2010 44

initiative, projects designed to halt biodiversity loss by 2010 and which represent commitments effectively made by the Group.

Forest Fire Prevention

The prevention of forest fires is a priority for the Portucel Group. In 2010, investment totalling approximately 3 million euros in a programme for preventing and helping to fight wildfires once again positioned the Group as the largest private sector contributor to Portuguese efforts to reduce risks in this area.

A significant portion of this expenditure was channelled to the strategy of managing fire risks and specifically to the planning and coordination of activities geared to increasing or diminishing the load of forest fuel. Forest fuel treatments were used in more than 11 000 hectares and maintenance operations were carried out in more than 4 600 kilometres of paths and fire breaks.

The resources mobilized to fight forest fires in 2010 included more than 300 people, including 70 Group employees, who were crucial to the effectiveness of operations. The equipment employed consisted of 7 watch towers, 39 front line units, 16 semi-heavy units and 2 helicopters, all of which worked alongside the public sector resources, covering the forest holdings of the Portucel Group.

As a result, the impact of fires on the area under the Group’s management was once again minimal (0.85%).

It is important to note that the work in protecting forests against wildfires has benefited woodlands in general, as more than 85% of the fire fighting missions in which the Group has taken part, mostly through Afocelca, took place on properties belonging to other landowners, providing significant support to the National Civil Protection Authority.

Procurement

Timber Supplies

The Portucel Group sourced approximately 4 million cubic metres of stripped timber for its mills in 2010. There was a continued shortfall in domestic supplies in 2010, obliging the Group to have added recourse to foreign markets. These markets also offered an important alternative for supplies of certified timber, which the Group needs and still fails to obtain in sufficient quantities on the Portuguese market.

Annual Report 2010 45

In line with the policy of corporate responsibility and engagement with its local communities, the Group has maintained a firm commitment to certification of forest management and to certification of the chain of custody, as means of assuring sustained development of its business.

Significantly, the volume of supplies of certified timber increased in 2010 in relation to the previous year.

Purchasing

The start-up of the new Setúbal paper mill caused a significant increase in the Group’s overall purchasing needs in terms of consumables and raw materials in all its industrial units.

The financial year of 2010 faced two distinct periods: the first half, when supplies were more plentiful on the market, causing purchasing to proceed smoothly, and the second half, which proved to be more complicated, and the Group experienced difficulties in obtaining the products needed to guarantee the desired pace of production.

These difficulties were due essentially to the following factors:

• Shorter supplies of products from agriculture, due to natural disasters such as the earthquake in Chile, fires in Russia, pests ruining crops in Thailand, floods, etc.; • Increased demand from China for European products, offering a better return and diverting European supplies; • Problems in European production units in the chemicals industry; • Social unrest with strikes and lock-outs in central Europe; • A partial relocation of the European chemicals industry associated with the pulp and paper sector to regions where investment is anticipated (South America).

The Group adopted the following measures to counteract these problems:

• A continued policy of supplier diversification, seeking alternatives in other regions of the world or in different industrial sectors, not traditional connected with the pulp and paper industry; • Consolidation of supplies imported by sea, increasing its storage capacity near the ports; • Ongoing improvements on logistics, in order to reduce safety stocks and thereby cut supply costs.

In its dealings with suppliers on the Portuguese market, the Group will take their structural fragility into account and seek to help build them up by signing long term contracts on mutually advantageous terms.

Annual Report 2010 46

Environment

Environmental Performance

Over the course of 2010 the Portucel Group undertook a number of projects designed to improve the efficiency of its production processes, through the rational use of natural resources, mitigation of environmental impacts at its industrial units, awareness raising and training, documented procedures, operating routines and contractual requirements, in addition to investing in infrastructure and equipment with a view to using the Best Available Techniques (BATs).

Consumption of Natural Resources Reference - 2006

110

105

100 % on, i 95 ut ol v

E 90

85

80 006 007 008 009 010 2 2 2 2 2

Renew able Energy, GJ Water, m3/t product

As a result of these efforts, assessment of the environmental performance of production processes, by collating indicators of eco-efficiency and environmental impacts, points to positive and sustained performance by all Group units, across all areas: air, water, waste and natural resources, in line with the BATs for the sector, reflected in the Environmental Licenses held by the Portucel Group plants.

Significant reductions have been achieved in gas emissions over the last five years, especially in the case of emissions of particles, SO2 and CO2, thanks to investment efforts in better processes, starting in 2009, and in particular in converting the biomass boiler at the Cacia plant to fluidized bed technology and optimizing the environmental performance of the biomass boiler, by replacing economizers and flue gas pipes at the Setúbal plant.

Annual Report 2010 47

Atmospheric Emissions Reference - 2006

130

110 %

on, 90 i ut ol v 70 E

50

30 06 07 08 09 10 20 20 20 20 20

Particles, kg/t product SO2, kg SO2/t product

NOx, kg NO2/t product CO2 fossil, t CO2 w ithout CTBs, ATF e SPCG

Considering only facilities operating up to 2009, CO2 emissions were cut by around 18% over the same five year period.

In September 2010, the new steam turbine started operation at the biomass cogeneration plant on the Figueira da Foz site. With the completion of this project and the start-up of two new biomass- fuelled power stations in Cacia and Setúbal (late 2009), the Portucel Group recorded a significant improvement in energy efficiency in 2010, thereby contributing to Portugal’s biomass energy balance sheet.

Effluents Reference - 2006

110

100

90

% 80 n, o i 70 ut l o

v 60 E 50

40

30 6 7 8 9 0 200 200 200 200 201

SST, kg/t product CBO5, kg O2/t product CQO, kg O2/t product

Annual Report 2010 48

Figures for emissions into water over the last five years show reductions of approximately 40% for suspended solids and phosphorous, and of approximately 60% for biodegradable organic matter.

In the field of waste management, the Portucel Group remains committed to improving production processes, with the prime aim of cutting its production of waste, as well as reclaiming and reusing the waste still produced. The Group has pressed ahead with R&D projects, in partnership with Instituto RAIZ and potential waste users, to find uses for waste as a raw material in other processes. Of the total waste produced, around 80% is sent for reuse/reclamation through licensed operators.

With a view to assuring efficient and effective management of all the information relating to the waste circuit (production, packaging, transport and disposal), and also standardization of practices at Portucel Group plants, new management procedures were implemented in 2010 using specially developed software.

In order to comply with the legislation in force, the Group conducted an analysis of the applicability of national and community law and regulations across the environmental sector. The measures adopted have included those relating to the REACH Regulations (Registration, Evaluation, Authorisation and Restriction of Chemicals and EC Regulation 1907/2006 of 18 December), which make industry responsible for managing the risks which chemicals may pose to health and the environment.

As a producer of chemicals, the Group followed up the pre-registration of the chemicals produced (in 2008, 2009 and 2010, in order to comply with registration requirements for the substances produced) by joining European consortia and carrying out all the work needed to register successfully the substances produced by the end of November. This process involved drawing up documents containing information on the properties and classification of each substance, as well as information on uses and guidelines for safe use for all users of the chemicals produced.

In connection with this, the Group has also maintained regular contacts with suppliers, in order to assure compliance with the legal requirements applicable to the products supplied.

European Union Ecolabel

In September 2010 the Portucel Group was granted a license to use the Ecolabel on the paper it manufactures and markets (PT/11/002). The European Union Ecolabel promotes products and services which meet strict standards of environmental performance, which have for several years been integrated into the management model adopted by the Group.

Annual Report 2010 49

In the office stationery and printing paper segment, the Ecolabel requires the use of certified timber from controlled sources, and bans the use of substances harmful to the environment and to health, as well as promoting use of renewable energy, implementation of a rigorous waste management system, and reduced emissions of greenhouse gases and other pollutants discharged into the air and water.

Aware of the growing importance of its environmental performance, the Portucel Group has taken an active part in developing new criteria for award of the European Union Ecolabel, due for publication in early 2011.

Management Systems

In 2010, the Portucel maintained all its management systems implemented and certified by commissioning audits from accredited bodies. This process took place in accordance with regulatory requirements in the fields of quality, environment, safety and the chain of responsibility. In keeping with the certification cycles established in the relevant standards, the Figueira da Foz Industrial Complex completed a further cycle in the certification of its Environmental Management System; this resulted in renewal of the certification, recognizing the good practice implemented at the site.

. Setúbal Industrial Figueira Foz Complex External Bosques Industrial (Portucel and Timber do Complex Cacia Mill ATF) Yards Atlântico

Quality ISO 9001 ISO 9001 ISO 9001

Environment ISO 14001 ISO 14001 ISO 14001 Certifications Safety OHSAS 18001 OHSAS 18001 OHSAS 18001 NP 4397 NP 4397 NP 4397 FSC-STD-40-003 Chain of FSC-STD-40-004 Responsibility FSC-STD-40-005 PEFC-Annex 4

Accreditation Laboratory ISO/IEC ISO/IEC 17025 17025 ISO/IEC 17025

In connection with the FSC and PEFC chain of responsibility, and with the extension of certification of the chain of responsibility for the new Setúbal mill (ATF – About the Future) and the creation of new sites, new product groups had to be introduced and the calculation methods used to manage FSC and PEFC credits had to be reformulated, so as to assure the traceability of all fibrous material. The

Annual Report 2010 50

procedures associated with the chain of responsibility were reviewed to reflect all the changes made, and credit management procedures were standardized across the Portucel Group.

Timber imports increased, making it necessary to introduce the concept of ILO – Import Logistics Operation, in order to assure control and traceability of timber in ships and to implement the percentage methods for FSC certified timber.

All wood imported in 2010 was supplied by companies with certified forests and/or chain of responsibility. In particular, all the long fibre consumed by the Group was sourced from FSC or PEFC certified suppliers or from FSC Controlled Wood. This fact, combined with inspections and checks in the field to analyze the risk of uncertified timber sourced from within Portugal, means that the Group can assure its customers and other interested parties of the reliable origin of all the wood used in its production processes.

Thanks to the efforts made by the Group to achieve this objective, sales of certified paper by the Portucel Group accounted for approximately 20% of total sales, the vast majority being sold with the FSC label.

In keeping with its management systems policy, the Group has consolidated and standardized the facilities, resources and skills needed to implement improvements to performance in the various certified management systems. Cross-group procedures have been implemented to standardize practices and the monitoring of critical processes, such as safety indicators and waste management.

Energy

In 2010, the Portucel Group recorded total gross power generation of 1,696 GWh, corresponding to an increase of approximately 48% over the previous year.

This increase was due essentially to the output of the new combined cycle cogeneration plant installed in Setúbal, to the two new biomass-fuelled powers stations in Cacia and Setúbal and to the start-up at the end of the third quarter of the new steam turbogenerator installed at the existing biomass cogeneration plant at the Figueira da Foz complex.

The electricity generated by the Portucel Group in 2010 corresponded to 3.4% of the total power produced in Portugal.

Power generation from biomass-fuelled plants (three cogeneration plans and two dedicated plants) totalled 1 099 GWh e and accounted for 52% of the total Portuguese output of electricity in 2010 from

Annual Report 2010 51

this renewable resource, with the Group remaining the country’s leading producer of power from biomass.

With the start up of the new steam turbogenerator (TG4) for the cogeneration plant at the Figueira da Foz complex, which started feeding power into the grid on a trial basis on 23 August 2010, the Group completed a series of CAPEX projects in the energy area, representing total investment of approximately 200 million euros.

Despite the increase in energy obtained from natural gas, responding to the energy needs of the new Setúbal paper mill, 65% of the Group’s energy production was derived from cogeneration plants and biomass power plants, which use renewable resources (forest biomass and timber by-products from the pulp production process).

The strategy pursued by the Group in this field was rewarded by international recognition in 2010 in the form of one of the Green Energy and Biofuels Awards from Pulp & Paper International (PPI).

Bioenergy and Fossil Fuels

The Portucel Group has pressed ahead with substantial investment designed to minimize its use of fossil fuels.

The CAPEX projects implemented in recent year with the greatest impact on current CO2 emissions by the Group have been the fitting of new recovery boilers at the Cacia da Figueira da Foz plants, the conversion of biomass boilers to fluidized bed technology at the three industrial complexes and modification of the lime kiln at the Figueira da Foz complex.

Operation at full capacity of the two new biomass-fuelled power stations at the Cacia and Setúbal plants, achieved in 2010, has consolidated the Group’s leadership of the biomass renewable energy sector in Portugal. With these projects, the Group has significantly contributed to reducing Portugal’s dependence on imported fossil fuels, as well as generating a highly positive impact on the country’s balance of CO2 emissions. It is estimated that the Group’s new plants will make it possible to avoid CO2 emissions in excess of 70 thousand tons on the country’s balance sheet.

The investment in the new steam turbogenerator at the biomass cogeneration plant at the Figueira da Foz plant, replacing two old steam turbogenerators, has resulted in a considerable gain in energy efficiency at this site. Although this project has no impact on the Group’s CO2 emissions (as it consists in increasing efficiency from a resource which was already biomass), it will indirectly permit a reduction in CO2 emissions of approximately 40 thousand tons for the country, by avoiding power generation in large gas or coal fired power stations.

Annual Report 2010 52

Forest Biomass for Energy Purposes

The Portucel Group has strengthened its position as a producer and supplier of forest biomass and timber by-products.

Integrated forestry operations, in keeping with sustainable principles and the concern to preserve biodiversity, are in the Group’s view the fundamental basis for a balance in obtaining raw materials for the production of tradable goods with a high level of value added, such as pulp and paper, and for making use of off-cuts and other residual biomass for producing energy.

In 2010, the Group had two biomass fuelled power stations working at full capacity, in Cacia and Setúbal. Supplying these two units is the prime business activity of Enerforest, a Group company engaged in producing and marketing biomass and managing waste for energy purposes. The company also supplies clients on a just-in-time basis. Over the course of the year, prices in the biomass market remained stable.

The Group has also started a project for stationery chipping at its mills, due for start-up in 2011. Work proceeded over the year on producing bales of waste biomass (PackinStock project), contributing to the clearance of brushwood/undergrowth on the Group’s properties and to improving stocks of biomass.

In the second half of 2010, operation of the biomass yards at power plants was placed under separate management, leading to better performance in stocks management and at the same time allowing Enerforest to concentrate on commercial activities, in order to assure flows of biomass supplies.

Human Resources

In line with the strategy defined the process of recruiting the workforce for the Portucel Group’s new paper mill in Setúbal continued throughout 2010.

This process contributed significantly to net growth in the workforce, which at year-end 2010 had grown to 2 331, including 2 218 employees on permanent contracts.

To furthering the personal and professional development of its workforce, and in line with expectations of individual progression and the Group’s opportunities and needs, career plans were reformulated for operational staff, involving all sectors of activity.

Annual Report 2010 53

The Group also achieved its aim in 2010 of standardizing the payment system, creating salary bands for shop floor staff.

The Portucel Group remained committed to ongoing training and professional development throughout 2010, providing a total of 130 125 training hours in 1 417 training initiatives, involving 2 628 trainees. Special attention has been paid to training in health and safety at work, which accounted for 18 303 training hours, or 13% of total training.

The absenteeism rate stood at 3.6% in 2010. Approximately 63% of this rate corresponds to sick leave.

Social Responsibility

The Portucel Group remained committed to the well-being of its local communities, and to preserving the environment. In 2010, the Group was involved in a series of initiatives designed to improve woodlands and conserve biodiversity.

The Group continued to pursue a policy of social responsibility by supporting a wide range of institutions working in the regions in which it operates. Special mention should be made to the following projects:

• “Give a hand to Nature” – as part of the celebrations for the World Forests Day, the Group organized educational activities at the Espirra Estate, involving some 150 primary school children from the regions around its plant. The project was designed to raise the young people’s awareness of the need to protect woodlands and preserve the environment.

• Clean Up Portugal – this project sought to bring together a large number of volunteers to clean up Portugal’s woodlands. The Group supported the initiative by providing paper as well as logistical and human resources to help in clean-up activities in woodlands.

• “Open Doors” Programme - in October and November 2010, the Group’s employees and their families were welcomed to the new paper mill in Setúbal, with some 1500 participants. The main aim of this initiative was for the visitors to see at first hand one of our Group’s largest development projects, thereby helping to build a sense of internal cohesion and belonging.

• Hospital de São Bernardo in Setúbal – acquisition of equipment for the Physical Medicine and Rehabilitation Department. This equipment will be used by children with serious motor handicaps from low income families.

Annual Report 2010 54

• Support for forestation - on Forests Day, the Group took part in a number of initiatives up and down the country, and donated overall more than 3,600 saplings, all with the purpose of raising public awareness of wildlife and countryside preservation.

• Aveiro Novos Fire Service (não faz sentido traduzir apenas uma parte) – support for acquisition of a truck to be used primarily for removal and rescue of accident victims.

Paper was also donated to schools and welfare organizations in the area of influence of the Group’s mills. A total of 167 donations were made to social, educational and cultural projects in 2009(ou 2010?), corresponding to approximately 49 tons of paper.

Special mention should also be made of the Group’s support for the ICNB (Institute for Wildlife and Biodiversity Conservation) under a cooperation agreement signed in 2010 and designed to promote, develop and implement a system for managing and monitoring the environmental quality of the Sado estuary and associated species.

The Group has continued to strengthen its ties with stakeholders through its different activities, and helped organize the following initiatives:

• Workshop on “New Generation Plantations & Responsible Forest Finance”. This event was organized by the WWF (World Wildlife Fund for Nature), in partnership with the Portucel Group, with the principal aim of bringing together representatives of the financial sector with people working on the NGP (New Generation Plantations) project, in order to design joint approaches able to sustain an industry based on increasingly sustainable plantations and consolidation in the sector of a model offering high standards of environmental and social responsibility.

• Workshop on “Paper: a sustainable medium for communication” – an event organized by the Group in collaboration with the Portuguese Industrial Association, in order to debunk some of the myths associated with the paper industry and paper consumption, and to reinforce the Company’s environmental friendly stance.

The Group also lent its support to a number of seminars organized by important bodies, such as the “5th Seminar – Iberian Logistical Platforms”, organized by the Setúbal and Sesimbra Port Authority, the 13th COGEN Conference, organized by the Portuguese Association for Energy Efficiency and Promotion of Cogeneration, the conference on “Renewable Energy 2010/2020”, organized by APREN (Renewable Energy Association” and the 2nd National Conference on Climate Change, organized by the Portuguese Association for Environmental Engineering.

Annual Report 2010 55

In the field of internal social responsibility, the Company has continued to pay tribute to its employees who complete 15 and 30 years working in the company, presenting them with an award to acknowledge their hard work and dedication.

Commendable work has also been carried out by the Sports Groups which, with the Company’s support, have organized a varied range of cultural and sporting activities designed to encourage healthy social relations between the workforce, with the possibility of involving their families and improving internal cohesion.

Partnerships with Leading Organizations

The Group continued in 2010 to take an active part in national and international organizations in the field of sustainable development and socially responsible practices. Examples of these are BCSD Portugal – Business Council for Sustainable Development, RSE Portugal – Portuguese Association for Corporate Social Responsibility and WBCSD – World Business Council for Sustainable Development.

Innovation

Market Recognition

The Portucel Group pushed ahead in 2010 with an ambitious plan for developing new products which have been eagerly taken up by the market. Special attention should be drawn to new additions to the range of high-performance and premium quality products, featuring low grammages. These products have taken advantage of the Group’s special expertise and the technological capabilities installed at all its production units.

In the market for web inkjet products, an emerging technology with excellent potential for premium applications, the Portucel Group made waves in 2010 with a new range of optimized surface-treated products which meet the strict technical requirements for this application.

Also in 2010, the Group finalized the process of refreshing the image of its Navigator, Discovery and Pioneer brands, bringing them up to date and making them more attractive to end consumers, as borne out by market research. This has further added value to the Group’s marketing potential.

The new high porosity eucalyptus pulp has helped to strengthen the Group’s product range, enabling it to attract new clients and to reap the rewards of research and technological development work conducted systematically over recent years.

Annual Report 2010 56

The Portucel Group has also taken a broad approach to promoting the use of paper as a vehicle for communication, drawing attention to the exceptional and sustainable characteristics of this resource.

The AIFF (Association for the Competitiveness of Forest Based Industries), of which the Group is a founder member, organized a conference on the theme “Crescer Forte, Grow Stronger”, designed to demonstrate the strength of Portuguese forest-based industries and as a forum for debate on building a better future. The AIFF has been recognized as a force for developing competitiveness and technology and coordinates a significant range of projects geared to innovation.

The importance of the research and development (R&D) projects in which the Group is involved has been recognized by the relevant authorities, including the Innovation Agency, the Ministry of Science, Technology and Higher Education and the Foundation for Science and Technology. Under SIFIDE, the system of tax breaks for companies involved in R&D, these authorities have certified investment projects in this area, with a value of 3.8 and 4.1 million euros respectively in 2007 and 2008. For 2009 and 2010, the Group expects to obtain certification of investment worth 3.7 and 3.4 million euros.

Research and Development

Instituto RAIZ has been engaged in genetic improvement projects designed to provide clones in future which are better adapted to climatic conditions less favourable to eucalyptus growth. This has involved significant efforts to extend the diversity of genetic materials, by acquiring hybrid seeds and pure species from abroad, as well as implementing a plan of controlled crosses between these species and Eucalyptus globulus.

Regarding biotechnology and plant propagation, the work continued on molecular certification by identifying cloned plants produced by the Portucel Group, and significant progress has been made in improving the efficiency of clone propagation operations, especially in fertilization and pest control.

Forest soil and nutrition projects have focussed primarily on improving existing forestry techniques, with research into the potential of irrigation and/or gel during the installation of eucalyptus plantations and the drafting of risk indicators for soil erosion. In connection with forestry protection, priority was given to developing biological techniques for combating Gonipterus platensis, or Australian weevil, a pest which has stripped leaves and hit productivity in Portuguese plantations of Eucalyptus globulus.

Concerning forest ecophysiology, and as to improving knowledge of the relationship between sustainability and productivity in eucalyptus woodlands and water resources, research has been initiated, in partnership with the Higher Institute of Agronomy, into the factors and processes responsible for the differing performance of clones in withstanding drought.

Annual Report 2010 57

RAIZ continues to provide forest consultancy services, and in 2010 it carried out an edapho-climatic characterization of approximately 10,000 hectares in 2010, generating information to serve as the basis for forestry projects and planning, as well as for business decisions concerning the acquisition of woodlands and leases. These consultancy services also took the form of training activities and technology transfer to the Group’s technical staff, as well as to forest producers and timber suppliers, and RAIZ also contributed significantly to prospecting and assessing the potential of new forestry ventures for the Portucel Group in various countries in the southern hemisphere.

Paper production and quality were the main focus of technological R&D projects. This included studying the use of enzymes in pre-treating pulp prior to refining, with energy savings in the order of 20% of total consumption in this operation and a reduction in sheet compaction with the corresponding gain in bulk.

In collaboration with the Universities of Aveiro, Beira Interior and Coimbra, research has been conducted into various alternative treatments for paper surfaces, as preparation for better printing. A solution has been developed based on nanoparticles of styrene copolymers, permitting significant gains in the optical density of colours. This treatment has been successfully piloted.

In the environmental field, experimental research has been completed into stabilization of blends of biological sludge and ash from biomass boilers, producing a material which provides excellent nutrition for eucalyptus. A study was also concluded of the water system for PM2 in Figueira da Foz, identifying a potential reduction in consumption of 6%, despite the already excellent performance in this field.

As part of the BIIPP project (Integrated Biorefinery in the Pulp and Paper Industry), in partnership with the Universities of Aveiro, Coimbra and Porto, a number of research projects have proceeded, from the pre-hydrolysis of hemicellulose from eucalyptus timber and the fermentation of pentoses for production of bioethanol, to the extraction and purification of components found in eucalyptus bark, with potential applications in the food, cosmetics and pharmaceutical industries.

Annual Report 2010 58

6. Outlook

Overall expectations for growth in the world economy in 2011 remain generally positive, although this growth is expected to be distinctly uneven. Strong growth is expected in Asia, driven by internal demand in these countries, which remains extremely robust, leading in turn to lively demand for commodities and sustaining the growth of export-oriented countries. Growth is also expected to be stronger in the USA than in Europe, with a clear divergence between the central and outlying countries in this region.

In the Euro zone, which is the Portucel group’s main market, forecasts point to moderate growth, spread unevenly through the region, whilst several factors of uncertainty could have a negative impact. These include the performance of the euro against other currencies, especially the US dollar, the impact of budgetary consolidation measures currently underway in many European countries, restrictions on banking finance for the economy and the financial crisis in outlying countries.

In contrast, economic indicators in the US have improved and growth is expected to be more robust, supported by stronger internal demand and a gradual recovery of the employment market. At the same time, the authorities remain committed to an expansionist economic policy and the financial and business sectors are better prepared to support growth than in the Euro zone.

In this setting, expectations for the Group’s paper business over the coming months have to remain prudent. Budgetary consolidation measures, currently being applied across much of Europe, combined with the low or negative economic growth expected in the outlying countries of the Euro zone, which are important markets for the Portucel Group, could have a negative impact on consumption.

Continued high unemployment in Europe and the US also exerts significant downwards pressure on paper consumption, especially in the case of office stationery, a segment which accounts for more than 50% of the Group’s sales.

At the same time, the start-up of new production capacity in Asia could cause a degree of imbalance in the market, especially if the EUR/USD exchange rate moves in a direction unfavourable to European producers, undermining their competitiveness in overseas markets, especially in Northern Africa, which has been an important destination for European exports.

Finally, future trends in pulp prices, where high levels have served to sustain sales prices for paper, could have a significant impact on business.

Annual Report 2010 59

The main source of uncertainty in the eucalyptus pulp market lies in the sustainability of demand from China. The slight slowdown in consumption in the Chinese market, observed over nearly all of 2010, combined with resumed production by plant which had been temporarily closed down, has caused a measure of imbalance, resulting in price adjustments. In addition, expanding paper production capacity in Asia, especially in China, and the closure of obsolete plant currently underway in the country could help to sustain demand in the medium term. The recovery in Chinese imports in later 2010 offered a positive indicator of this tendency.

It should nonetheless be stressed that the Group’s decision to move further along the value chain, significantly increasing its paper output, integrating an increasing quantity of pulp in paper and expanding its energy output, reduces Portucel Groups’ exposure to the volatility of the pulp market.

In the energy sector, with the start-up of the new steam turbine for the biomass-fuelled cogeneration plant at the Figueira da Foz industrial complex, the Group has completed its investment programme in this area, constituting a firm commitment to its own sustainable growth. With its newly augmented capacity, the Group will be able to generate approximately 1.8 Twh in 2011, equivalent to approximately 5% of all power generated in Portugal, most of it obtained from renewable resources – forestry biomass and operating by-products.

As detailed above, the Group is also pressing ahead with analysis of possibilities for international expansion in the southern hemisphere, so as to be able to take the relevant decisions with the necessary degree of security.

Annual Report 2010 60

Acknowledgments

After concluding a series of major capital investments, the financial year of 2010 marked a turning point for the Portucel Group, which achieved a substantial increase in business, both in paper production and in power generation. The excellent performance recorded throughout the year would not have been possible without the great dedication and commitment of all the Group’s employees, to whom the Directors wish to express their appreciation and thanks.

A word of thanks is also owed to all of Portucel’s external stakeholders, clients, suppliers, shareholder and other partners, for their interest and support.

Setúbal, 15 March 2011

Pedro Mendonça de Queiroz Pereira - Chairman of the Board of Directors

José Alfredo de Almeida Honório - Chief Executive Officer

Manuel Soares Ferreira Regalado - Executive Director

Adriano Augusto da Silva Silveira - Executive Director

António José Pereira Redondo - Executive Director

José Fernando Morais Carreira de Araújo - Executive Director

Luis Alberto Caldeira Deslandes - Non-executive Director

Manuel Maria Pimenta Gil Mata - Non-executive Director

Francisco José Melo e Castro Guedes - Non-executive Director

Annual Report 2010 61

Declaration required under Article 245.1 c) of the Securities Code

Article 245.1 c) of the Securities Code requires that each of the persons responsible for issuers make a number of declarations, as described in this article. In the case of Portucel, a uniform declaration has been adopted, worded as follows:

I hereby declare, under the terms and for the purposes of Article 245.1 c) of the Securities Code that, to the best of my knowledge, the management report, annual accounts, legal accounts certificate and other financial statements of Portucel – Empresa Produtora de Pasta e Papel, S.A., for the financial year of 2010, were drawn up in accordance with the relevant accounting rules, and provide a true and fair view of the assets and liabilities, financial affairs and profit or loss of the said company and other companies included in the consolidated accounts, and that the management report contains a faithful account of the business, performance and position of the said company and other companies included in the consolidated accounts, describing the main risks and uncertainties which they face.

Considering that the members of the Audit Board and the Official Auditor sign an equivalent declaration in relation to the documents for which they are responsible, a separate declaration with the above text was signed by the directors only, as it was deemed that the company officers fall within the concept of “persons responsible for the issuer”. As required by this rule, we provide below a list of the persons signing the declaration and their office in the company:

Pedro Mendonça de Queiroz Pereira - Chairman of the Board of Directors José Alfredo de Almeida Honório - Chief Executive Officer Manuel Soares Ferreira Regalado - Executive Director Adriano Augusto da Silva Silveira - Executive Director António José Pereira Redondo - Executive Director José Fernando Morais Carreira de Araújo - Executive Director Luis Alberto Caldeira Deslandes - Non-executive Director Manuel Maria Pimenta Gil Mata - Non-executive Director Francisco José Melo e Castro Guedes - Non-executive Director

Annual Report 2010 62

Corporate Bodies

The company officers of Portucel – Empresa Produtora de Pasta e Papel S.A. elected for the four- year term from 2007 to 2010 are as follows:

General Meeting

Chairman: José Pedro Aguiar-Branco

Secretary: Rita Maria Pinheiro Ferreira

Board of Directors

Chairman: Pedro Mendonça de Queiroz Pereira

Directors: José Alfredo de Almeida Honório Manuel Soares Ferreira Regalado Adriano Augusto da Silva Silveira António José Pereira Redondo José Fernando Morais Carreira de Araújo Luis Alberto Caldeira Deslandes Manuel Maria Pimenta Gil Mata Francisco José Melo e Castro Guedes

Executive Board

Chairman: José Alfredo de Almeida Honório

Members: Manuel Soares Ferreira Regalado Adriano Augusto da Silva Silveira António José Pereira Redondo José Fernando Morais Carreira de Araújo

Annual Report 2010 63

Company Secretary

António Alexandre de Almeida e Noronha da Cunha Reis

Audit Board

Chairman: Duarte Nuno d’Orey da Cunha

Full Members: Miguel Camargo de Sousa Eiró Gonçalo Nuno Palha Gaio Picão Caldeira

Alterante Members: Marta Isabel Guardalino da Silva Penetra

Remuneration Committee

Chairman: José Gonçalo Maury, representing Egon Zehnder

Members: João Rodrigo Appleton Moreira Rato Frederico José da Cunha Mendonça e Meneses

Statutory Auditor

PricewaterhouseCoopers & Associados – SROC, Lda represented by António Alberto Henrique Assis or César Abel Rodrigues Gonçalves

Alternate: José Manuel Henriques Bernardo (ROC)

Annual Report 2010 64

Mandatory Disclosures

Disclosures required by Articles 447 and 448 of the Companies Code

1. Number of shares held by the company officers as at 31/12/2010 (under Article 14 of CMVM Regulation 5/2008)

a) Securities issued by company and held by company officers:

António José Pereira Redondo: 6 000 shares Adriano Augusto da Silva Silveira: 2 000 shares Duarte Nuno d’Orey da Cunha: 16 000 shares

b) Securities issued by companies in a control or group relationship with Portucel, held by company officers:

José Alfredo de Almeida Honório: 20 000 shares in Semapa – Sociedade de Investimento e Gestão, SGPS, S.A. Duarte Nuno d’Orey da Cunha: 2 907 shares in Semapa - Sociedade de Investimento e Gestão, SGPS, S.A. Maria Rita Carvalhosa Mendes de Almeida Queiroz Pereira: 16 464 shares in Semapa – Sociedade de Investimento e Gestão, SGPS, S.A.

c) Securities issued by the company and related companies held by companies in which directors and auditors hold corporate office:

• Cimigest, SGPS, S.A. – 1 097 966 shares in the company and 1 669 253 shares in Portucel - Empresa Produtora de Pasta e Papel, S.A. • Longapar, SGPS, S.A. – 20 869 300 shares in Semapa – Sociedade de Investimento e Gestão, SGPS, S.A. • Sodim, SGPS, SA – 18 842 424 shares in Semapa – Sociedade de Investimento e Gestão, SGPS, S.A. • Sociedade Agrícola da Quinta da Vialonga, S.A. – 625 199 shares in Semapa – Sociedade de Investimento e Gestão, SGPS, S.A. and 61 696 shares in Portucel - Empresa Produtora de Pasta e Papel, S.A. • OEM - Organização de Empresas, SGPS, SA – 535 000 shares in Semapa – Sociedade de Investimento e Gestão, SGPS, S.A.

Annual Report 2010 65

d) Acquisition, disposal, encumbrance or pledge of securities issued by the company or related or group companies by company officers and the companies referred to in 3:

• Maria Rita Carvalhosa Mendes de Almeida de Queiroz Pereira effected the following transactions with shares in Semapa – Sociedade de Investimento e Gestão, SGPS, S.A.:

Price per Date Quantity Nature share Disposal by 28-Jun 17 627 7,676 € (*) swap

(*) Amounts determined under Article 14.2 of the said CMVM Regulation 5/2008

• Longapar, SGPS, S.A. effected the following transactions in shares in Semapa – Sociedade de Investimento e Gestão, SGPS, S.A.:

Price per Date Quantity Nature share 28-Apr 10 000 7,552 € Purchase 28-Apr 10 000 7,60 € Purchase 28-Apr 5 000 7,615 € Purchase 28-Apr 5 000 7,62 € Purchase 28-Apr 10 000 7,63 € Purchase 28-Apr 10 000 7,64 € Purchase 05-May 15 000 7,09 € Purchase 05-May 15 000 7,10 € Purchase 07-May 4 090 6,99 € Purchase 07-May 5 910 7,00 € Purchase 07-May 5 000 7,05 € Purchase 07-May 5 000 7,10 € Purchase

• OEM – Organização de Empresas, SGPS, S.A. effected the following transactions in shares in Semapa – Sociedade de Investimento e Gestão, SGPS, S.A.:

Price per Date Quantity Nature share 20-May 5 000 7,10 € Purchase 22-Jul 10 000 7,60 € Purchase 23-Jul 858 7,59 € Purchase 23-Jul 4 142 7,60 € Purchase

Annual Report 2010 66

- Semapa – Sociedade de Investimento e Gestão SGPS, SA effected the following transactions in shares in Portucel – Empresa Produtora de Pasta e Papel SA:

Price Date Quantity Per share Nature 28-Apr 3 956 1,933 € Purchase 28-Apr 2 100 1,934 € Purchase 28-Apr 4 371 1,948 € Purchase 28-Apr 1 200 1,94 € Purchase 28-Apr 3 217 1,95 € Purchase 28-Apr 2 077 1,95 € Purchase 28-Apr 5 000 1,92 € Purchase 28-Apr 58 079 1,95 € Purchase 28-Apr 8 919 1,94 € Purchase 28-Apr 23 800 1,94 € Purchase 28-Apr 10 025 1,92 € Purchase 28-Apr 5 000 1,91 € Purchase 28-Apr 15 000 1,89 € Purchase 28-Apr 7 256 1,87 € Purchase

- Sale over the counter, on 29 December 2010, of 8 507 018 shares in Portucel by Semapa Inversiones S.L., for a price of 2.3090 €/share, thereby disposing of all its shares in Portucel.

- Purchase over the counter, on 29 December 2010, of 8 507 018 shares in Portucel by Semapa – Sociedade de Investimento e Gestão SGPS, SA, for a price of 2.3090 €/share, increasing the company’s holding to 105 522 241 shares in Portucel. This number refers to shares held directly, and the total number of share attributable to this company is more than 2/3 of Portucel’s share capital.

Annual Report 2010 67

2. List of Qualifying Holdings at 31 December 2010 (as required by Article 20 of the Securities Code)

% of capital and voting % of non-suspended Entity Nº Shares rights voting rights

Semapa SGPS SA 579,140,456 75.46% 76.97% Semapa - Soc. de Investimento e Gestão, SGPS, S.A. 105,522,241 13.75% 14.02% Seinpar Investments B.V. 241,583,015 31.48% 32.11% Seinpart - Participações, SGPS, S.A. 230,839,400 30.08% 30.68% Seminv - Investimentos, SGPS, S.A. 590,400 0.08% 0.08% Cimentospar - Participações Sociais, SGPS, L.da 589,400 0.08% 0.08% Duarte Nuno d'Orey da Cunha (*) 16,000 0.00% 0.00%

Bestinver Gestión, S.A. SGIIC 15,443,547 2.012% 2.052% Bestinver Bolsa, F.I. 8,687,115 1.13% 1.15% Bestinfond, F.I. 3,730,925 0.49% 0.50% Bestinver Mixto, F.I, 1,738,263 0.23% 0.23% Soixa Sicav 601,314 0.08% 0.08% Texrenta Inversiones, SICAV 131,976 0.02% 0.02% Rodaon Inversiones, SICAV 55,644 0.01% 0.01% Tibest Cinco, SICAV, SA 41,723 0.01% 0.01% Invers.en Bolsa Siglo XXI, SICAV 41,241 0.01% 0.01% Loupri Inversiones 33,165 0.00% 0.00% Aton Inversiones, SICAV, SA 31,053 0.00% 0.00% Corfin Inversiones, SICAV 29,192 0.00% 0.00% Tigres Inversiones, SICAV, SA 28,869 0.00% 0.00% Mercadal de Valores,SICAV, SA 26,704 0.00% 0.00% H202 Inversiones SICAV 24,283 0.00% 0.00% Divalsa de Inversiones, SICAV, SA 24,168 0.00% 0.00% Entrecar Inversiones, SICAV, SA 21,352 0.00% 0.00% Pasgom Inversiones, SICAV 21,184 0.00% 0.00% Cartera Millennium SICAV 18,236 0.00% 0.00% Zamarron SICAV 17,287 0.00% 0.00% Acciones, Cup.y Obli. Segovianas 17,165 0.00% 0.00% Renvasa 16,590 0.00% 0.00% Artica XXI, SICAV, SA 14,686 0.00% 0.00% Campo de Oro, SICAV 13,318 0.00% 0.00% Linker Inversiones, SICAV, SA 12,729 0.00% 0.00% Trascasa 10,988 0.00% 0.00% Tordesillas de Inversiones 10,728 0.00% 0.00% Heldalin Inversiones, SICAV 9,920 0.00% 0.00% Tawarzar 2-S2, Sicav 7,643 0.00% 0.00% Mazquita de Inversiones 7,111 0.00% 0.00% Opec Inversiones, SICAV 6,757 0.00% 0.00% Jorik Investment 6,187 0.00% 0.00% Iberfama SICAV, S.A. 6,031 0.00% 0.00%

(*) Member of Portucel Governing Bodies

At 31/12/2010, Portucel held indirectly, through subsidiaries, 15 054 358 of its own shares, representing 1.96 % of its share capital.

Annual Report 2010 68

3. Information on Own Shares (required by Articles 66 and 324.2 of the Companies Code)

As required by Articles 66 and 324.2 of the Companies Code, a Portucel – Empresa Produtora de Pasta e Papel, S.A., hereby discloses that during the financial year of 2010 it neither acquired nor disposed of its own shares, and that at 31 December 2010, the number of own shares held through subsidiaries was as follows:

Entity Own shares

PortucelSoporcel Energia, SGPS, SA 3,763,591 PortucelSoporcel Papel, SGPS, SA 3,763,589 PortucelSoporcel Floresta, SGPS, SA 3,763,589 PortucelSoporcel Participações, SGPS, SA 3,763,589

Total 15,054,358

Annual Report 2010 69

7. Consolidated Accounts and Notes to the Financial Statements

CONSOLIDATED SEPARATE INCOME STATEMENT AS OF 31 DECEMBER 2010 AND 2009

4th Quarter 4th Quarter Amounts in Euro Notes 2010 2009 2010 2009 (unaudited) (unaudited) Revenues 4 Sales 1,381,917,937 1,091,194,393 380,442,809 287,871,055 Services rendered 3,537,751 4,114,681 1,347,962 1,312,721 Other operating income 5 Gains on the sale of non-current assets 3,194,781 2,984,343 246,706 57,398 Other operating income 19,664,346 31,757,249 5,351,303 9,788,087 Change in the fair value of biological assets 18 (7,787,354) (4,537,080) 100,310 (5,535,534) Cos ts 6 Cost of inventories sold and consumed (517,223,456) (485,155,693) (151,967,019) (118,977,119) Variation in production (5,635,463) 1,347,874 (1,175,390) 14,310,497 Cost of materials and services consumed (336,907,043) (288,945,219) (90,949,593) (79,854,252) Payroll costs (127,020,239) (114,743,918) (32,143,119) (33,608,069) Other costs and losses (13,574,714) (15,856,762) 222,973 (7,311,997) Provisions (1,165,032) 21,464,011 (22,056,901) 11,413,240 Depreciation, amortization and impairment losses 8 (121,184,784) (111,544,032) (23,888,256) (41,884,077) Operational results 277,816,730 132,079,847 65,531,785 37,581,950

Group share of (loss) / gains of associated companies and joint ventures - - - - Net financial results 10 (20,079,417) (7,545,480) (3,011,167) 1,754,557 Profit before tax 257,737,313 124,534,367 62,520,618 39,336,507

Income tax 11 (47,157,088) (19,461,901) (6,108,751) (6,661,715) Ne t Incom e 210,580,225 105,072,466 56,411,867 32,674,792

Non-controlling interests 13 7,855 7,094 (91,249) (54,765) Net profit for the year 210,588,080 105,079,560 56,320,618 32,620,027

Earnings per share Basic earnings per share, Eur 12 0.280 0.140 0.075 0.043 Diluted earnings per share, Eur 12 0.280 0.140 0.075 0.043

Annual Report 2010 70

CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS OF 31 DECEMBER 2010 AND 2009

Amounts in Euro Notes 31-12-2010 31-12-2009

ASSETS Non-Current Assets Goodwill 15 376.756.384 376.756.384 Other intangible assets 16 94.486 2.341.138 Plant, property and equipment 17 1.604.129.728 1.626.391.468 Biological assets 18 110.502.616 118.289.970 Available-for-sale financial assets 19 126.074 130.074 Investment in associates 19 516.173 - Deferred tax assets 26 22.963.945 17.762.957 2.115.089.406 2.141.671.991 Current Assets Inventories 20 172.899.681 147.268.818 Receivable and other current assets 21 212.839.536 168.190.561 State and other public entities 22 32.228.030 51.477.448 Cash and cash equivalents 29 133.958.910 52.549.252 551.926.157 419.486.079

Total Assets 2.667.015.563 2.561.158.070

EQUITY AND LIABILITIES Capital and Reserves Share capital 24 767.500.000 767.500.000 Treasury shares 24 (26.787.706) (26.787.706) Fair value reserves 25 78.040 (1.456.243) Other reserves 25 47.005.845 42.330.224 Translation reserves 25 881.575 241.567 Retained earnings 25 304.020.378 383.418.964 Net profit for the year 210.588.080 105.079.560 1.303.286.212 1.270.326.366 Non-controlling interests 13 216.755 230.003 1.303.502.967 1.270.556.369

Non-current liabilities Deferred taxes liabilities 26 164.998.958 138.441.365 Pensions and other post-employment benefits 27 13.713.756 19.518.247 Provisions 28 25.213.377 24.160.450 Interest-bearing liabilities 29 729.696.907 420.985.054 Other non-current liabilities 29 24.471.153 28.076.744 958.094.151 631.181.860 Current liabilities Interest-bearing liabilities 29 91.250.000 331.311.677 Payables and other current liabilities 30 264.839.433 272.530.233 State and other public entities 22 49.329.012 55.577.931 405.418.445 659.419.841 Total liabilities 1.363.512.596 1.290.601.701

Total equity and liabilities 2.667.015.563 2.561.158.070

Annual Report 2010 71

STATEMENT OF COMPREHENSIVE CONSOLIDATED INCOME AS OF 31 DECEMBER 2010 AND 2009

4th Quarter 4th Quarter Amounts in Euro 2010 2009 2010 2009 (unaudited) (unaudited)

Retained earnings for the year exluding non-controlling interests 210.580.225 105.072.466 56.411.867 32.674.792

Fair value in derivative financial instruments 2.090.813 (9.116.715) (1.806.386) (3.446.880) Currency translation differences 640.008 (19.439) 2.253.456 34.466 Actuarial gains / (losses) (128.931) 7.327.298 (942.460) 2.500.829 Tax on items above when applicable (476.254) 2.397.897 596.888 915.162 Profit directly recognized in equity 2.125.636 589.041 101.497 3.577

Total recognized income and expense for the year 212.705.861 105.661.507 56.513.364 32.678.369

Attributable to: Portucel's shareholders 212.719.109 105.662.862 56.425.290 32.632.367 Non-controlling interests (13.248) (1.355) 88.074 46.002 212.705.861 105.661.507 56.513.364 32.678.369

Annual Report 2010 72

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FROM 1 JANUARY 2009 TO 31 DECEMBER 2010

31 December Gains/losses Dividends paid and Treasury shares Application of prior 31 December distributed recognized in the year's net profit reserves Amounts in Euro 2009 year (Note 25) acquisition (Note 7) 2010

Share capital 767,500,000 - - - - 767,500,000 Treasury shares (26,787,706) - - - - (26,787,706) Fair value reserve (1,456,243) 1,534,283 - - - 78,040 Other reserves 42,330,224 - - - 4,675,621 47,005,845 Translation reserve 241,567 640,008 - - - 881,575 Retained earnings 383,418,964 (43,262) (179,759,263) - 100,403,939 304,020,378 Net profit for the year 105,079,560 210,588,080 - - (105,079,560) 210,588,080 Total 1,270,326,366 212,719,109 (179,759,263) - - 1,303,286,212 Non-controlling interests 230,003 (13,248) - - - 216,755 Total 1,270,556,369 212,705,861 (179,759,263) - - 1,303,502,967

31 December Gains/losses Dividends paid and Treasury shares Application of prior 31 December distributed recognized in the year's net profit reserves Amounts in Euro 2008 year (Note 25) acquisition (Note 7) 2009

Share capital 767,500,000 - - - - 767,500,000 Treasury shares (24,431,056) - - (2,356,650) - (26,787,706) Fair value reserve 5,244,545 (6,700,788) - - - (1,456,243) Other reserves 89,928,852 - - - (47,598,628) 42,330,224 Translation reserve 261,006 (19,439) - - - 241,567 Retained earnings 276,449,376 (80,417) (79,006,792) - 186,056,797 383,418,964 Net profit for the year 131,074,223 105,079,560 - - (131,074,223) 105,079,560 Total 1,246,026,946 98,278,916 (79,006,792) (2,356,650) 7,383,946 1,270,326,366 Non-controlling interests 231,358 (1,355) - - - 230,003 Total 1,246,258,304 98,277,561 (79,006,792) (2,356,650) 7,383,946 1,270,556,369

Annual Report 2010 73

CONSOLIDATED CASH FLOW STATEMENT AS OF 31 DECEMBER 2010 AND 2009

4th Quarter 4th Quarter Amounts in Euro Notes 2010 2009 2010 2009 (unaudited) (unaudited) OPERATING ACTIVITIES Payments from customers 1,463,346,689 1,193,444,683 380,395,685 279,741,352 Payments to suppliers 1,155,853,247 910,416,119 290,600,091 226,587,450 Payments to personnel 109,150,271 103,495,467 47,012,229 43,526,661 Cash flow from operations 198,343,171 179,533,098 42,783,365 9,627,242

Income tax received / (paid) (29,614,419) (30,851,143) (15,472,864) (4,171,069) Other receipts / (payments) relating to operating activities 75,682,439 96,386,792 35,155,172 25,694,497

Cash flow from operating activities (1) 244,411,191 245,068,746 62,465,673 31,150,669

INVESTING ACTIVITIES Inflow s Financial investments - 6,500 - 6,500 Intangible assets (CO2 emission rights) 10,604,340 5,522,900 6,051,980 - Investment grants 30,150 6,009,539 30,150 - Interest and similar income 7,042,208 10,141,814 545,582 925,640 Inflow s from investment activities (A) 17,676,698 21,680,753 6,627,712 932,140 Outflow s Property, plant and equipment 50,535,227 371,228,324 - 53,760,856 Intangible assets - - - - Outflow s from investment activities (B) 50,535,227 371,228,324 - 53,760,856

Cash flow s from investment activities (2 = A - B) (32,858,529) (349,547,571) 6,627,712 (52,828,716)

FINANCING ACTIVITIES Inflow s Borrow ings 400,000,000 65,000,000 85,000,000 - Inflow s from financing activities (C) 400,000,000 65,000,000 85,000,000 -

Outflow s Borrow ings 328,125,000 16,048,260 25,000,000 9,798,260 Interest and similar costs 22,258,740 33,108,907 7,017,954 6,269,428 Acquisition of treasury shares - 2,356,650 - - Dividends paid and distibuted reserves 179,759,263 79,006,792 117,682,498 - Outflow s from financing activities (D) 530,143,003 130,520,609 149,700,452 16,067,688

Cash flow s from financing activities (3 = C - D) (130,143,003) (65,520,609) (64,700,452) (16,067,688)

CHANGES IN CASH AND CASH EQUIVALENTS (1)+(2)+(3) 81,409,658 (169,999,434) 4,392,934 (37,745,735)

CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR 52,549,252 222,548,686 - -

CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR 133,958,910 52,549,252 4,392,934 (37,745,735)

Annual Report 2010 74

The preparation of the financial statements requires the use of NOTES TO THE important estimates and judgments in the application of the Group’s accounting policies. The principal statements which CONSOLIDATED FINANCIAL involve a greater degree of judgment or complexity, or the STATEMENTS most significant assumptions and estimates used in the preparation of the aforesaid financial statements are disclosed AS OF 31 DECEMBER 2010 in Note 3.

(In these notes, unless indicated otherwise, all amounts are 1.2 Basis of Consolidation expressed in Euro) 1.2.1. Subsidiaries The Portucel Group (“Group”) comprises Portucel – Empresa Produtora de Pasta e Papel, S.A. (hereafter referr ed to as the Subsidiaries are all entities over which the Group has the right Company or Portucel) and its subsidiaries. Portucel is a public to determine their financial and operating policies, generally company with the capital represented by shares and was where the Group’s interest is represented by more than half of incorporated on 31 May 1993, in accordance with Decree-Law voting rights. no. 39/93, 13 February, following the restructuring of Portucel – Empresa de Celulose e Papel de Portugal, SA. The existence and the effect of the potential voting rights which are currently exercisable or convertible are taken into Head Office: Mitrena, 2901-861 Setúbal account when the Group assesses whether it has control over Share Capital: Euro 767,500,000 another entity.

Registration No: 503 025 798 Subsidiaries are consolidated under the full consolidation method since the date on which control is transferred to the Group while they are excluded at the date where control The Group’s main business is the production and sale of ceases. writing and printing paper and related products, and it is present in all of the value added chain from research and These companies’ shareholders equity and net income/loss development of forestry and agricultural production, the corresponding to the third-party investment in such companies purchase of wood and the production and sale of bleached are presented under the caption of non-controlling interests eucalyptus kraft pulp – BEKP and electric and thermal energy. respectively in the consolidated statement of the financial position (in a separate component of shareholder’s equity) and These consolidated financial statements were approved by the in the consolidated income statement. Companies included in Board of Directors on 15 March 2011. the consolidated financial statements are disclosed in Note 39.

The Group’s senior management, that is the mem bers of the The purchase method is used in recording the acquisition of Board of Directors who sign this report, declare that, to the subsidiaries. The cost of an acquisition is measured by the fair best of their knowledge, the information contained herein was value of the assets transferred, the equity instruments issued prepared in conformity with the applicable accounting and liabilities incurred or assumed on acquisition date, plus standards, providing a true and fair view of the assets and costs directly attributable to the acquisition. liabilities, the financial position and results of the companies included in the Group’s consolidation scope. The identifiable assets acquired and the liabilities and contingent liabilities assumed in a business combination are 1. Summary of the principal initially measured at fair value on the acquisition date, accounting policies irrespective of the existence of non-controlling interests. The excess of the acquisition cost relative to the fair value of the The principal accounting policies applied in the preparation of Group’s share of the identifiable assets and liabilities acquired these consolidated financial statements are described below. is recorded as goodwill, as described in note 15.

The accounting policies related to brands and financial If the acquisition cost is less than the fair value of the net instruments / instruments held to maturity are not applicable to assets of the acquired subsidiary (negative goodwill or the presented financial statements. However, they are Badwill), the difference is recognised directly in the income included to ensure completeness compared to the accounting statement in the period where it takes place. policies applied by the parent company – the Semapa Group. Transaction costs directly attributable are immediately 1.1 Basis of preparation expensed.

Intercompany transactions, balances, unrealised gains on The Group’s consolidated financial statements have been transactions and dividends distributed between group prepared in accordance with International Financial Reporting companies are eliminated. Unrealised losses are also Standards adopted by the European Union (IFRS – formerly eliminated, except where the transaction displays evidence of referred to as the International Accounting Standards - IAS ) impairment of a transferred asset. issued by the International Accounting Standards Board

(IASB) and the interpretations issued by the International Subsidiaries’ accounting policies have been changed Financial Reporting Interpretations Committee (IFRIC) or by whenever necessary so as to ensure consistency with the the former Standing Interpretations Committee (SIC) in force policies adopted by the Group. on the date of preparation of the mentioned financial statements. 1.2.2. Associates

The accompanying consolidated financial statements were Associates are all the entities in which the Group exercises prepared on the going concern basis from the accounting significant influence but does not have control, generally books and records of the companies included in the applied in the case of investments representing between 20% consolidation (Note 44), and under the historic cost and 50% of the voting rights. Investments in associates are convention, except for biological assets, and financial equity accounted. instruments which are recorded at fair value (Notes 18, 20, 21 and 33). Plant, property and equipment acquired previously to In conformity with the equity accounting method, financial 1 January 2004 are measured under its revalued amount. investments are recorded at their acquisition cost, adjusted by

the amount corresponding to the Group’s share of changes in

Annual Report 2010 75

the associates’ shareholders’ equity (including net 1.4 Foreign currency translation income/loss) with a corresponding gain or loss recognised for the period on earnings or on changes in capital, and by 1.4.1. Functional and reporting currency dividends received. The items included in the financial statements of each one of The difference between the acquisition cost and the fair value the Group’s entities are measured using the currency of the of the assets and liabilities attributable to the affiliated economic environment in which the entity operates (functional company on the acquisition date is, if positive, recognised as currency). Goodwill and recorded as investments in affiliated companies. If negative, goodwill is recorded as income for the period under The consolidated financial statements are presented in Euro, the caption “Group share of (loss) / gains of associated which is the Group’s functional and reporting currency. companies and joint ventures”. 1.4.2. Balances and transactions expressed in foreign Transaction costs directly attributable are immediately currencies expensed. All Group’s assets and liabilities denominated in foreign An evaluation of investments in associates occurs when there currencies were converted into euro using the exchange rates are signs that the asset could be impaired, while impairment ruling at the statement of financial position’s date. losses are recorded as costs also under the same caption. Currency differences, favourable and unfavourable, arising When the Group’s share in the associate’s losses is equal to from differences between the exchange rates ruling at the or exceeds its investment in the associate, the Group ceases transaction date and those ruling on collection, payment or to recognise additional losses, except where it has assumed statement of financial position’s date, were recorded as liability or made payments in the associate’s name. income and costs in the consolidated income statement for the year. Unrealised gains on transactions with associates are eliminated to the extent of the Group’s investment in the 1.4.3. Group companies associates. Unrealised losses are also eliminated, except where the transaction reveals evidence of impairment’s The results and the financial position of the Group’s entities existence on the transferred assets. which have a different functional currency from the Group’s reporting currency are converted into the reporting currency as Associates’ accounting policies used in the preparation of the follows: individual financial statements were amended, whenever necessary, so as to ensure consistency with the policies (i) The assets and liabilities of each Statement of financial adopted by the Group. position are translated at the exchange rates ruling at the date of the financial statements; 1.3 Segmental reporting (ii) If materially relevant, the income and costs are Operating segment is a group of assets and operations of the converted at the exchange rate ruling on the Group whose financial information is used in the decision transaction dates. Otherwise, income and expenses for making process developed by the Group’s management. each income statement are translated at the average exchange rate of the months of the reporting period The operating segments are presented on these financial statements in the same way as internally used for the Group’s Exchange differences resulting from item (i) above are performance evaluation. recognised as a separate equity component, under the currency translation reserve heading, and from item (ii) as Four operating segments have been identified by the Group: financial costs. uncoated printing and writing paper – UWF, bleached eucalyptus kraft pulp – BEKP, forestry and power generation. 1.5 Intangible assets

BEKP, electric energy and UWF paper are produced by the Intangible assets are booked at acquisition cost less Group in two plants located in Figueira da Foz and Setúbal. accumulated amortisation and impairment losses, by the BEKP and energy are also produced in another plant located straight-line method over a period between 3 and 5 years and in Cacia. annually for CO2 emission rights.

Wood and cork are produced from woodlands owned or leased 1.5.1. CO2 emission rights by the Group in Portugal. The production of cork and pinewood are sold to third parties while the eucalyptus wood is mainly The CO2 emission rights attributed to the Group within the consumed in the production of BEKP. National Plan for the assignment of CO2 Emission Licences at

no cost, are recognised under Intangible Assets at market A significant portion of the Group’s own BEKP production is value on the award date, with a corresponding liability consumed in the production of UWF paper. Sales of both recorded under “Deferred income – grants”, for the same products (BEKP and UWF) are destined to around 100 amount. countries throughout the world.

The Group records as an operating cost with a corresponding Power generation, steam and electricity, is mainly produced liability and an operating income as a result of the recognition from bio fuels in cogeneration. Steam production is used for of the proportion of the corresponding subsidy relating to the internal consumption while electricity is sold to the national Group’s CO2 emissions. energy network.

Sales of emission rights give rise to a gain or a loss, for the Segmental reporting accounting policies are those consistently difference between the amount realised and the respective used in the Group. All inter-segmental sales and services initial recognition cost, net of the corresponding State subsidy, rendered are made at market prices and eliminated on which is recorded as “Other operating income” or “Other consolidation. operating costs”, respectively.

Segmental information is disclosed in Note 4. At the date of the consolidated statement of financial position,

CO2 emission rights’ portfolio is valued at the lower of the

Annual Report 2010 76

acquisition or their market value. On the other hand, liabilities The residual values of the assets and respective useful lives due for those emissions are valued at market value at the are reviewed and adjusted when necessary at the balance same date. sheet date. If the book value of the asset is higher than the 1.5.2. Brands asset’s realisable value, then this is written down to the estimated recoverable amount by the recording of impairment Whenever brands are identified in a business combination, the losses (Note 1.8). Group records them separately in the consolidated statements as an asset at historical cost, which represents their fair value Gains or losses arising from derecognition or disposal are on the acquisition date. calculated as the difference between the proceeds received on disposal and the asset’s book value, and are recognised in the On subsequent valuation, brands are measured in the Group’s income statement as other operating income or costs. consolidated financial statements at cost less accumulated amortization and impairment losses. 1.8 Impairment of non-current assets

Own brands are not shown in the Group’s financial statements, Non-current assets which do not have a defined useful life are since they represent internally generated intangible assets. not subject to depreciation, but are subject to annual impairment tests. Assets subject to depreciation are reviewed 1.6 Goodwill for impairment whenever events or changes in circumstances indicate that the amount at which they are shown in the accounts may not be recoverable. Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable An impairment loss is recognised as the amount of the excess assets and liabilities of the acquired subsidiary/associate at the of the asset’s book value over its recoverable amount. The date of acquisition. Goodwill on acquisitions of subsidiaries is recoverable amount is the higher of the net sales price and its included in intangible assets. Goodwill on acquisitions of value in use. For the purpose of conducting impairment tests, associates is included in investments in associates. the assets are grouped at the lowest level for which cash flows

can be identified separately (cash generating units which Goodwill on acquisitions of subsidiaries and associates is not belong to the asset), when it is not possible to do so amortised and is tested annually for impairment. Impairment individually for each asset. losses relative to goodwill cannot be reversed. Gains or losses on the disposal of an entity include the carrying amount of The reversal of impairment losses recognised in previous goodwill relating to that entity. periods is recorded when it can be concluded that the

recognised impairment losses no longer exist or have 1.7 Property, plant and equipment decreased (with the exception of impairment losses relating to Goodwill – see Note 1.6). This analysis is made whenever Property, plant and equipment are recorded at the acquisition there are indications that the impairment loss formerly cost or the revaluated acquisition cost, in accordance with the recognised has been reversed or reduced. prevailing legislation, the accounting principles generally accepted in Portugal until 1 January 2004 (transition date to The reversal of impairment losses is recognised in the income IFRS), deducted of depreciation and impairment losses. statement as other operating income, except for the available- for-sale financial assets (Note 1.10.4), unless the asset has Property, plant and equipment acquired after the transition been revaluated, in which case the reversal will represent a date are shown at cost, less depreciation and impairment portion or the total of the revaluation amount. However, an losses. The acquisition cost includes all expenditures directly impairment loss is reversed only up to the limit of the amount attributable to the acquisition of the assets, their transport to that would be recognised (net of amortisation or depreciation) the place where they are to be used and operations to put if it had not been recognised in prior years. them in the desired operating conditions. 1.9 Biological assets Subsequent costs are included in asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is Biological assets are measured at fair value, less estimated probable that future economic benefits will flow to the Group costs to sell at the time of harvesting. The Group’s biological and the respective cost can be reliably measured. assets comprise the forests held for the production of timber,

capable of incorporating the BEKP production, including other Planned maintenance costs are considered part of the asset’s species like pine or cork oak. acquisition cost and, therefore, they are entirely depreciated until the maintenance date of the next forecasted event. When calculating the fair value of the forests, the Group uses

the discounted cash flows method, based on a model All other repairs and maintenance costs, other than the developed in house, which considers assumptions about the planned maintenance, are charged to the income statement in nature of the assets being valued, namely, the expected yield the financial period in which they are incurred. of the forests, the timber selling price deducted by costs

relating to harvest and transportation, the rents of the Depreciation is calculated on acquisition cost, mainly using the woodlands and also plantation costs, maintenance costs and a straight line method from the date the assets are ready to entry discount rate. into service, at rates that best reflect their estimated useful lives, as follows: The discount rate was determined on the basis of the Group’s

expected rate of return on its forests. Average useful life

(in years) Fair value adjustments resulting from changes in estimates of

growth, growth period, price, cost and other assumptions are Buildings and other constructions 12 – 30 recognised as operating income/ costs in the caption “Change Equipment: in the fair value of biological assets”. Machinery and equipment 6 – 25

Transportation equipment 4 – 9 At the time of harvest, wood is recognised at fair value less Tools and utensils 2 – 8 estimated costs at point of sale, in this case, the pulp mills. Administrative equipment 4 – 8

Returnable containers 6

Other property, plant and equipment 4 – 10

Annual Report 2010 77

1.10 Financial Instruments include the use of recent arm’s length transactions, reference to other instruments that are substantially the same, The Group classifies its financial instruments in the following discounted cash-flows analysis and option pricing models categories: loans and receivables, financial assets at fair value refined to reflect the issuer’s specific circumstances. through profit and loss, held-to-maturity investments, and available-for-sale financial assets. Potential gains and losses arising from these instruments are recorded directly in the fair value reserve (shareholders’ The classification depends on the intention motivating the equity) until the financial investment is sold, received, or instruments’ acquisition. Management determines the disposed of in any way, at which time the accumulated gain or classification at the moment of initial recognition of the loss formerly reflected in fair value reserve is taken to the instruments and reappraises this classification on each income statement. reporting date. If there is no market value or if it is not possible to determine All acquisitions and disposals of these instruments are one, these investments are recognised at acquisition cost. recognised at the date of the relevant purchase and sale contracts, irrespective of the financial settlement date. At each reporting date the Group assesses whether there is objective evidence that a financial asset or group of financial Financial instruments are initially recorded at the acquisition assets is impaired. If a prolonged decline in fair value of the cost, while fair value is equal to the price paid, including available-for-sale financial assets occurs, then the cumulative transaction expenses. The subsequent measurement depends loss – measured as the difference between the acquisition cost on the category the instrument falls under, as follows: and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss - is 1.10.1. Loans granted and receivables removed from equity and recognised in the income statement.

Loans and accounts receivable are non-derivative financial An impairment loss recognised on available-for-sale financial assets with fixed or determinable payments and which are not assets is reversed if the loss was caused by specific external quoted in an active market. They originate when the Group events of an exceptional nature that are not expected to recur advances money, goods or services directly to a debtor but which subsequent external events have reversed; under without any intention of negotiating the debt. these circumstances, the reversal does not affect the income statement and the asset’s subsequent increase in value is thus They are included in current assets, except where their taken to the fair value reserve. maturity exceeds 12 months after the statement of financial position date, in which case they are classified as non-current 1.11 Derivative financial instruments assets. Occasionally, when considered appropriate, the Group uses Loans granted and receivables are included in “Receivables derivative financial instruments aimed at managing the and other current assets” in the statement of financial position financial risks to which it is exposed. (Note 21). The use of these instruments occurs whenever expectations of 1.10.2. Financial assets at fair value through profit or changes in interest or exchange rates justify it, as the Group loss seeks to hedge against adverse movements through derivative instruments, such as interest rate swaps (IRS), caps and This category comprises two sub-categories: (i) financial floors, forwards, calls, collars, etc. assets held for trading, and (ii) assets designated at fair value through profit or loss at initial recognition. A financial asset is In the selection of derivative financial instruments, it is their classified under this category if acquired primarily for the economic aspects that are the main focus of assessment. purpose of selling in the short-term or if so designated by management. Transactions that qualify as cash-flow hedges are recognised in the statement of financial position at fair value. Assets in this category are classified as current if they are either held for trading or are expected to be realised within 12 To the extent that, in accordance with prevailing accounting months of the statement of financial position date. These standards, they are considered effective hedges, changes in investments are measured at fair value through the income the fair value of those instruments are initially recorded as an statement. offset to shareholders’ equity and subsequently reclassified under the financial costs heading, on the settlement date. 1.10.3. Held-to-maturity investments Accordingly, in net terms, costs associated with hedged items Held-to-maturity investments are non-derivative financial are accrued at the inherent hedging transaction rate assets, with fixed or determinable payments and fixed contracted. Gains or losses arising from the premature maturities that the Group’s management has the positive cancellation of this type of instrument are taken to the income intention and ability to hold to maturity. Investments in this statement at the time they arise. category are recorded at amortised cost using the effective interest rate method. Although the derivatives contracted by the Group represent effective instruments to cover business risks, not all of them 1.10.4. Available-for-sale financial assets qualify as hedging instruments in accounting terms to satisfy the rules and requirements of IAS 39. Instruments that do not Available-for-sale financial assets are non-derivative financial qualify as hedging instruments in accounting terms are stated assets that: (i) the Group has the intention of holding for an on the statement of financial position at fair value and changes undefined period of time, (ii) are designated as available-for- in same are recognised in financial costs. sale at initial recognition or (iii) do not meet the conditions to be classified in any of the remaining categories, as described Whenever possible, the fair value of derivatives is estimated above. on the basis of quoted instruments. In the absence of market prices, the fair value of derivatives is estimated through the These financial instruments are recognised at market value, as discounted cash-flow method and option valuation models, in quoted at the date of the statement of financial position. accordance with prevailing market assumptions.

If the market of a financial asset is not active, the Group establishes fair value by using valuation techniques. These

Annual Report 2010 78

The fair value of the derivatives financial instruments is 1.15 Cash and cash equivalents included in Receivables and other current assets and Payables and other current liabilities. Cash and cash equivalents includes cash, bank accounts and other short-term investments with an initial maturity of up to 3 months which can be mobilised immediately without any 1.12 Corporate Income Tax significant risk in value fluctuations.

Corporate income tax includes current and deferred tax. 1.16 Share capital and treasury shares Current income tax is calculated based on net income, adjusted in conformity with tax legislation in force at the Ordinary shares are classified in shareholders’ equity (Note balance sheet date. 26).

Deferred tax is calculated using the liability method, based on Costs directly attributable to the issue of new shares or other the temporary differences between the book values of the equity instruments are reported as a deduction, net of taxes, assets and liabilities and their respective tax base. The income from the issue proceeds. tax rate expected to be in force in the period in which the temporary differences will reverse is used in calculating Costs directly attributable to the issue of new shares or options deferred tax. for the acquisition of a new business are included in the acquisition cost as part of the purchase consideration. Deferred tax assets are recognised whenever there is a reasonable likelihood that future taxable pr ofits will be When any Group company acquires shares of the parent generated against which they can be offset. Deferred tax company (treasury shares), the payment, which includes assets are revised periodically and decreased whenever it is directly-attributable incremental costs, is deducted from the likely that tax losses will not be utilised. shareholders’ equity attributable to the holders of the parent company’s capital until such time the shares are cancelled, Deferred taxes are recorded as a cost or income for the year, redeemed or sold. except where they result from amounts recorded directly under shareholders’ equity, situation in which deferredWhen tax such is also shares When such shares are subsequently sold or repurchased, recorded under the same caption. any proceeds, net of the directly attributable transaction costs and taxes, is reflected in the shareholders’ equity of the Tax benefits attributed to the Group regarding its investment company’s shareholders, under other reserves. projects are recognised through the income statement as there is sufficient taxable income to allow its use. 1.17 Interest bearing liabilities

The amounts to be included in the current tax and in the Interest-bearing liabilities are initially recognised at fair value, deferred tax, resulting from transactions and events net of the transaction costs incurred, and are subsequently recognised in reserves, are recorded directly in these same stated at their amortised cost. Any difference between the headings, not affecting the net profit for the period. amounts received (net of transaction costs) and the repayment amount is recognised in the income statement over the term of 1.13 Inventories the debt, using the effective interest rate method.

Inventories are valued in accordance with the following criteria: Interest-bearing debt is classified as a current liability, except where the Group has an unconditional right to defer the i) Goods and raw materials settlement of the liability for at least 12 months after the balance sheet date. Goods and raw, subsidiary and consumable materials are valued at the lower of their purchase cost or their net realisable 1.18 Borrowing Costs value. The purchase cost includes ancillary costs, and it is determined using the weighted average cost as the valuation Borrowing costs relating to loans are usually recognised as method. financial costs, in accordance with the accrual principle and the effective interest rate method. ii) Finish products and work in progress Financial costs on loans directly related to the fixed assets Finished and intermediate products and work in progress are acquisition, construction or production, are capitalised, to form valued at the lower of their production cost (which includes part of the asset’s cost. Capitalisation of these charges begins incorporated raw materials, labour and general manufacturing once preparations are started for the construction or costs, based on a normal production capacity level) or their net development of the asset and is suspended after its utilisation realisable value, excluding any storage (warehousing), begins or when the respective project is suspended. logistical and selling costs. Any financial income generated by loans that are directly The net realisable value corresponds to the estimated selling associated with a specific investment is deducted from price after deducting estimated completion and selling costs. financial costs eligible for capitalisation. Differences between costs and net realisable value, if lower, are recorded in Inventories consumed and sold. 1.19 Provisions

1.14 Receivables and other current assets Provisions are recognised whenever the Group has a present legal or constructive obligation, as a result of past events, in Debtors’ balances and other current assets are recorded at fair which it is probable that an outflow of resources will be value and are subsequently recognized at their amortised cost, required to settle the obligation and the amount has been net of impairment losses, so as to state them at their expected reliably estimated. net realisable value (Note 24). Provisions for future operating losses are not recognised. Impairment losses are recorded when there is objective Provisions are reviewed on the date of the statement of evidence that the Group will not receive the full amount financial position and are adjusted to reflect the best estimate outstanding in accordance with the original conditions of the at that date. accounts receivable.

Annual Report 2010 79

The Group incurs expenditure and assumes liabilities of an In order to capitalize those contributions, pension Funds were environmental nature. Accordingly, expenditures on equipment set up, for which employees can make additional voluntary and operating techniques that ensure compliance with contributions. applicable legislation and regulations (as well as on the reduction of environmental impacts to levels that do not Therefore, the responsibility with these plans corresponds to exceed those representing a viable application of the best the contribution made to the funds based on the percentage of available technologies, on those related to minimizing energy the employees’ salaries defined in the respective agreements. consumption, atmospheric emissions, the production of These contributions are recognized as a cost in the income residues and noise,) are capitalised when they are intended to statement in the period to which they refer, regardless of the serve the Group’s business in a durable way, as well as those date of the settlement of the liability. associated with future economic benefits and which serve to prolong life expectancy, increase capacity or improve the 1.20.2. Holiday pay, allowances and bonuses safety or efficiency of other assets owned by the Group. Under the terms of the prevailing legislation, employees are 1.20 Pensions and other post-employment entitled annually to 25 working days leave, as well as to a benefits month’s holiday allowance, entitlement to which is acquired in the year preceding its payment. 1.20.1. Defined benefit pension plans and retirement bonus According to the current Performance Management System (“Sistema de Gestão de Desempenho”), employees have the right to a bonus based on annually-defined objectives. Some of the Group’s subsidiaries have assumed the commitment to make payments to their employees in the form Accordingly, these liabilities are recorded in the period in which of complementary retirement pensions, disability, early the employees acquire the respective right, irrespective of the retirement and survivors’ pensions, having constituted date of payment, whilst the balance payable at the date of the defined-benefit plans. statement of financial position is shown under the caption “Payables and other current liabilities”. As referred to in Note 27, the Group constituted autonomous Pension Funds as a means of funding most of the 1.21 Payables and other current liabilities commitments for such payments. Trade creditors and current accounts payable are initially Portucel assumed the obligation to pay a retirement bonus, recorded at their fair value and subsequently at amortised equivalent to six-month salary, for employees that retire at the cost. regular date of retirement, 65 years old. The present value of the liabilities for future retirement payments and bonuses are 1.22 Government grants determined on an actuarial basis and recorded as a cost of the period in line with the services provided by the potential Government grants are recognised at their fair value when beneficiaries in their employment, in accordance with IAS 19. there is a reasonable assurance that the grant will be received

and the group will comply with all required conditions. As such, the total liability is estimated separately for each plan at least once every six months, on the date of closing of the Government grants received to compensate capital interim and annual accounts, by a specialised and expenditures, are reported under the caption “Payables and independent entity in accordance with the projected unit credit other current liabilities” and are recognised in the income method. statement during the estimated useful life of the granted asset,

by deducting the value of its amortisation. Past service costs resulting from the implementation of a new plan, or increases in the benefits awarded are recognised Government grants related to costs are deferred and immediately in situations where the benefits are to be paid or recognised in the income statement over the period that are past due. matches the costs with the compensating grants.

The liability thus determined is stated on the statement of Grants related to biological assets carried at fair value, in financial position, less the market value of the funds set up as accordance with IAS 41, are recognised in the income a liability, under Post-employment benefit liabilities, when statement when the terms and conditions of the grant are met. underfunded, and as an asset in situations of over-funding.

Actuarial gains and losses resulting from differences between 1.23 Leases the assumptions used for purposes of calculating the liabilities and what effectively occurred (as well as from changes made Fixed assets acquired under leasing contracts, as well as the thereto and from the difference between the expected amount corresponding liabilities, are recorded using the financial of the return on the funds’ assets and the actual return) are method. recognised when incurred directly in shareholders’ equity. According to this method, the asset’s cost is recorded in Gains and losses generated on a curtailment or settlement of property, plant and equipment and the corresponding liability is a defined benefit pension plan are recognised in the income recorded under liabilities as loans, while the interest included statement when the curtailment or settlement occurs. in the instalments and the asset’s depreciation, calculated as described in Note 1.7, are recorded as costs in the income A curtailment occurs when there is a material reduction in the statement of the period to which they relate. number of employees or the plan is altered in such a way that the benefits awarded are reduced with a material impact Leases, under which a significant part of the risks and benefits of the property is assumed by the lessor, with the Group being 1.20.1. Defined contribution plans the lessee, are classified as operating leases. Payments made under operating leases, net of any incentives received by the Some of the Group’s subsidiaries have assumed lessee, are recorded in the income statement during the period commitments, regarding contributing to a defined contribution of the lease. plan with a percentage of the beneficiaries’ salary, in order to provide retirement, disability, early retirement and survivors’ 1.23.1. Leases included in contracts according to pensions. IFRIC4

Annual Report 2010 80

The Group recognizes an operating or financial lease 1.28 New standards, changes and whenever it enters into an agreement, encompassing a interpretations of existing standards transaction or a series of related transactions which even if not in the legal form of a lease, transfers a right to use an asset in The application of the interpretations and amendments to the return for a payment or a series of payments. standards mentioned below, are mandatory by the IASB for the financial years that begin on or after 1 January 2010: 1.24 Dividends distribution New standards Effective date * The distribution of dividends to shareholders is recognised as I FRS 3 (revised) - Business combinations 1 January 2010 a liability in the Group’s financial statements in the period in I AS 27 (revised) - Consolidated and separate financial statements 1 January 2010 Changes in IFRS 5 - Non-current assets held for sale and discontinued which the dividends are approved by the shareholders and up operations 1 January 2010 until the time of their payment. I FRS 1 (revised) - First-time Adoption of International Financial Reporting Standards 1 January 2010 I FRS 2 (revised) - Share-based Payment 1 January 2010 1.25 Revenue recognition and accrual basis I AS 39 (revised) - Financial instruments: recognition and measurement 1 January 2010 I FRIC 12 - Service concession arrangements 1 January 2010 Group companies record their costs and income according to I FRIC 15 - Agreements for the construction of a real estate 1 January 2010 the accrual principle, so that costs and income are recognised I FRIC 16 - Hedges of a net investment in a foreign operation 1 January 2010 as they are generated, irrespective of the time at which they I FRIC 17 - Distributions of a non-cash assets to ow ners 1 January 2010 I FRIC 18 Transfers of Assets from Customers 1 January 2010 are paid or received. * Periods beginning on or after

The differences between the amounts received and paid and Additionally, as part of the consistency review process of the the respective costs and income are recognised in the practical application of IAS / IFRS, IASB has decided to make “Receivables and other current assets” and “Payables and improvements to the standards, aimed at clarifying some of the other current liabilities” headings (Notes 21 and 30, inconsistencies identified. The most significant improvements respectively). relate to changes made to IAS 17, IAS 36 and IAS 38.

Income from sales is recognised in the consolidated income The adoption of these new interpretations and the statement when the risks and benefits inherent in the amendments to the above-mentioned standard did not have ownership of the respective assets are transferred to the any relevant impact in the Group’s financial statements. purchaser and the income can be reasonably quantified. Thus, sales of products (pulp and paper) are recognised only when New standards and interpretations not mandatory as at 31 they are dispatched to the client. December 2010:

Sales are recognised net of taxes, discounts and other costs There are new standards, interpretations and amendments of inherent to their completion, at the fair value of the sum existing standards that, despite having already been received or receivable. published, they are only mandatory for the periods starting on 1 January 2010 or further, as the Group decided not to early- Income from services rendered is recognised in the adopt them in the current period, as follows: consolidated income statement by reference to the phase of fulfilment of service contracts at the statement of financial Annual improvement of standards in 2009 (effective for annual position date. financial periods beginning on 1 January 2010) Effective date *

Dividend income is recognised when the owners or I AS 17 - Leases 1 January 2010 shareholders entitlement to receive payment is established. I AS 36 - Impairment of assets 1 January 2010 I AS 38 - Intangible assets 1 January 2010 * Periods beginning on or after Interest receivable is recognised according to the accrual principle, considering the amount owed and the effective Standarts not yet approved by the European Comission Effective date * interest rate during the period to maturity. I AS 24 (revised) - Related Party Disclosures 1 January 2011 I FRS 9 (New ): Financial Instruments - Classification and measurement 1 January 2013 1.26 Contingent assets and liabilities I FRIC 19 - Extinguishing Financial Liabilities w ith Equity Instruments 1 July 2011

Annual improvement of standards in 2010 Contingent liabilities in which there is probability of an outflow of funds affecting future economic benefits is only probable, I FRS 1 - First-time Adoption of International Financial Reporting Standards 1 January 2011 are not recognised in the consolidated financial statements, I FRS 3 - Business combinations 1 January 2011 and are disclosed in the notes, unless the probability of the I FRS 7 - Financial Instruments - Disclosure 1 January 2011 I AS 1 - Presentation of financial statements 1 January 2011 outflow of funds affecting future economic benefits is remote, I AS 27 - Consolidated and separate financial statements 1 January 2011 in which case they are not the object of disclosure. Provisions I AS 34 - Interin financial reporting 1 January 2011 are recognised for liabilities which meet the conditions I FRIC 13 Customer Loyalty Programmes 1 January 2011 described in note 1.19. * Periods beginning on or after

Contingent assets are not recognised in the consolidated Up to the date of issuing this report, the Group had not financial statements but are disclosed in the notes when it is concluded the estimate of the effects of the changes arising probable that a future economic benefit will arise from from the adoption of these standards, for which it decided not them(Note 37). to early-adopt them. However, no material effect is expected in the financial statements as a result of their adoption. 1.27 Subsequent events

Events after the date of the statement of financial position 2. Risk Management which provide additional information about the conditions prevailing at the date of the statement of financial position are The Group operates in the forestry sectors, in the production of reflected in the consolidated financial statements. eucalyptus for use in the production of BEKP (bleached eucalyptus kraft pulp), which is essentially incorporated in the Subsequent events which provide information about conditions production of UWF (uncoated woodfree) paper but is also sold which occur after the date of the statement of financial position in the market, and in energy production, essentially through are disclosed in the notes to the consolidated financial the forest biomass that is generated in the BEKP production statements, if material. process.

Annual Report 2010 81

All the activities in which the Group is involved are subject to iii. Ensure compliance with the water-cycle functions, risks which could have a significant impact on its operations, promoting, whenever possible, the rehabilitation and its operating results, the cash flow generated and in its qualitative protection of hydro resources. financial position. The Group also has a research institute, Raíz, whose activity The risk factors analysed in this chapter can be structured as is focused in 3 main areas: Applied Research, Consulting and follows: Training. In the forestry research area, Raíz seeks:

i. Specific risks inherent to the sectors of activity in i. To improve the productivity of the eucalyptus forests which the Group operates: ii. To enhance the quality of the fibre produced 9 Risks associated with the forestry sector iii. To implement a sustained forestry management 9 Risks associated with the production and program from an economic, environmental and sale of BEKP and UWF paper social perspectives 9 Risks associated with energy generation iv. To lower the cost of wood 9 General context risks ii. Group risks and the manner in which it carries out its Regarding the risk of wild fires, the manner in which the activities. Group manages its woodlands constitutes the front line for mitigating this risk. Most of the Group’s forestry resources are The Group has a risk-management programme which is certified by the FSC (Forest Stewardship Council), a focused on the analysis of the financial markets in order to certification programme which guarantees that the Company’s minimize the potential adverse effects on its financial forests are managed in a responsible manner from an performance. Risk management is conducted by the Finance environmental, economic and social standpoint, complying Division in accordance with policies approved by the Board of with stringent and internationally-recognised criteria. Directors. The Finance Division evaluates and undertakes the hedging of financial risks in strict coordination with the Group’s Amongst the various management measures to which the operating units. Group has committed under this program, the strict compliance for the biodiversity rules and the construction and The Board of Directors provides the principles of risk maintenance of access roads and routes to each of the management as a whole and policies covering specific areas operational areas assume particular importance in mitigating such as foreign exchange risk, interest rate risk, liquidity risk, the risk of wild fires. credit risk, the use of derivatives and other non-derivate financial instruments and the investment of excess liquidity. Moreover, the Group has a stake in the Afocelca grouping – a The internal audit department follows the implementation of complementary corporate grouping (CCG) between the the risk management principles defined by the Board of Portucel Group and the ALTRI Group, whose mission is to Directors. provide assistance to the fight against forest fires at the grouped companies’ land holdings, in close coordination and 2.1 Specific risks in sectors where the Group collaboration with the National Civil Protection Authority acts (Autoridade Nacional de Protecção Civil – ANPC). This grouping manages an annual budget of some 2 million euro, and has created an efficient and flexible structure which 2.1.1. Significant risks from the forestry sector implements practices aimed at reducing protection costs and at minimizing the losses by forest fires for the members of The Portucel Group carries out the management of woodlands the grouping, which own and manage more than 250 covering an area of some 120 thousand hectars, from north to thousand hectars of forests in Portugal. south of the country, according to the principles laid down in its Forestry Policy. Eucalyptus trees occupy 73% of this area, 2.1.2. Risks associated to producing and selling UFW namely the Eucalyptus globulus, the species that is universally paper and BEKP acknowledged as the tree with the ideal fibre for producing high quality paper. Supply of raw materials

The main risk factor threatening the eucalyptus forests lies in the low productivity of Portugal’s forests and in the worldwide The supply of wood, namely eucalyptus, is subject to price demand for certified products, considering that only a small fluctuations and difficulties encountered in the supply of raw proportion of the forests is certified. It is expected that this materials that could have a significant impact on the competitive pressure will remain in the future. As an example, production costs of companies producing BEKP (Bleached the forestry area managed by the Group represents less than Eucalyptus Kraft Pulp). 3.5% of Portugal’s total forested area and 54% of all certified Portuguese forests, according to the FSC standard. The planting of new areas of eucalyptus and pine is subject to the authorization of the relevant entities, so that increases in The main risks associated with the sector are the risk attached forested areas, or the substitution of some of the currently to the productive capacity of the plantations and the risk of used areas depend on forest owners which are estimated in wildfires. In order to maximise the productive capacity of the some 400,000, on the applicable legislation and the speed of areas it manages, the Group has developed and employs the responsible authorities in approving the new projects. If Forestry Management models which contribute to the domestic production proved to be insufficient, in volume and in maintenance and ongoing improvement of the economic, quality, namely of certified wood, the Group could have to ecological and social functions of the forestry areas, not only place greater reliance on the importation of wood. regarding the population but also from the forestry landscape perspective, namely: Concerning the importation of wood, there is a risk related to its shipment from the place of origin to the harbours and to the i. Increase the productivity of its woodlands through Group’s mills. This transportation risk is reduced by the agreed the use of the best agro-forestry practices adapted purchasing conditions, where the ownership of raw materials is to local conditions and compatible with the transferred at the arrival port, and complemented by insurance environment. coverage of potential supplying losses caused by any ii. Establish and improve the network of forestry transportation accident that may affect the supplying of wood. infrastructures to enable the required accessibility for management, whilst making them compatible The Group seeks to maximize the added value of their with the forestry protection measures against products, particularly through increased integration of certified wildfires. wood in these products.

Annual Report 2010 82

Concentration of the customer portfolio The low expression of this wood outside the forests directly managed by the Group, has meant a shortage of supply to At 31 December 2010, the Group’s 10 main BEKP customers which the Group has responded with an increase in the price accounted for 15% of the period’s production of BEKP and offered when comparing to wood originating from forests that 69% of external sales of BEKP. This ratio is a result of the are not certified. strategy pursued by the Group, consisting of a growing integration of the BEKP produced into the UWF paper Furthermore, and considering the unsurpassable National produced and commercialized. Value Added in the Portuguese Economy, direct and indirect, of the eucalyptus industry, as well as the significance of such As such, the Group considers that there is little exposure to the industries for exports, the level of employment they provide risks of customer concentration regarding the sale of BEKP. and the increasing demand for eucalyptus, not easily satisfied by national forests, the Group has been making the At 31 December 2010, the Group’s 10 main customers for Government and the public opinion aware that it is necessary UWF paper represented 57% of this product’s sales during the to guarantee that, whilst the internal production of this type of period. Also regarding UWF paper, the Group follows a wood does not increase significantly on an economically viable strategy of mitigating the risk of customer concentration. The basis, its use as bio fuels for energy production should not be Group sells UWF paper to more than 100 countries, thereby put ahead of its use as a raw material, to be used to produce allowing a dispersion of the risk of sales concentration tradeable goods. amongst a reduced number of markets and/or customers.

In the year ended 31 December 2010, an increase of Euro 5 on the cost of a cubic meter of the eucalyptus wood consumed in the production of BEKP, would have had an impact in Environmental legislation Group’s earnings of some Euro 20,000,000. In recent years, environmental legislation in the EU has The production process depends on the constant supply of increased its constraints regarding the control of effluents. The steam and electric energy. For this, the Group owns several companies of the Group conform to the prevailing legislation. cogeneration units that ensure this constant supply. A contingent plan with redundancies between the different power Although no significant changes in legislation are expected in generation units is in place in order to reduce the risk of failure the near future, if that was to happen there is always the of the power supply to the pulp and paper mills. possibility that the Group may need to incur in increased expenditure, in order to comply with any new environmental requirements that may come into force. UWF paper and BEKP market price At present, any known changes in law are related to the predictable end of the CO2 emission rights’ free attribution The market prices of BEKP and UWF paper are defined in the regime, after the conclusion of the current stage of the world global market in perfect competition and have a National Plan for the Allocation of CO2 Emission Licences, significant impact on the Group’s revenues and on its PNALE II. profitability. Cyclical fluctuations in BEKP and in UWF Paper prices mainly arise from changes in the world supply and This change will increase the costs for the transformation demand, the financial situation of each of the international industry in general and in particular for the paper and pulp market players (producers, traders, distributors, clients, etc.), industry, without any compensation for the CO2 that, annually, creating imbalances in supply, in the face of market demand is absorbed by the forests of this industry. raising market volatility. In order to reduce the impact of this change, the Group has The BEKP and UWF paper markets are highly competitive. been following a strategy of carrying out a series of Significant variations in existing production capacities could environmental related investments that, among other have a strong influence on world market prices. These factors advantages, have resulted in a continued reduction of the CO2 have encouraged the Group to follow a defined marketing and emissions, whilst the production volume has continuously branding strategy and to invest in relevant capital expenditure increased within the last years. to increase productivity and the quality of goods sold. On the other hand, under the terms set in Decree-Law In the year ended 31 December 2010, a 10% drop in the price 147/2008, dated 29 June that transposed directive 2004/35/CE per ton of BEKP and of 5% in the price per ton of UWF paper to the national law, the Group ensured the environmental sold by the Group in the period, would have represented an insurances demanded by the referred law, guaranteeing impact on its earnings of about Euro 16,000,000 and Euro regulatory compliance and reducing exposure to 53,000,000, respectively. environmental risks.

2.1.3. Risks associated to the production of energy Demand for the Group’s products Energy is considered to be an activity of growing importance in Any decline in the demand for BEKP and UWF paper in the the Group but, nonetheless, it is an activity that allows the use EU and US markets could have a severe impact on the of the biomass generated in the BEKP production, but also Group’s sales. Moreover, demand for BEKP produced by the ensuring the supply - under the co-generation regime - of Group depends on the growth of worldwide paper production thermal and electric power at the BEKP and UWF paper capacity, since the paper producers are the Group’s main pulp industrial complexes. customers. Considering the increasing integration of the Group’s mills In the specific case of UWF paper, the Group believes that the dedicated to the production of BEKP and UWF paper and as a marketing and branding strategy pursued, along with the means of increasing the use of the biomass gathered in the substantial investments made aimed at improving productivity woodlands, the Group built new natural-gas and biomass and producing high quality products, will enable it to place its power-generating units. These units serve to complement products in target markets which are less sensitive to those already in use, thus creating a number of redundant variations in demand, thus allowing a lower exposure to this units which allow the Group to mitigate the risk of an risk. interruption in the power supply to its industrial sites.

Annual Report 2010 83

In this sector, the main risk is linked to the supply of raw material, namely, biomass. The group has played a pioneering role and has been developing a market for the sale of biomass for supplying the power plants it owns. The fostering of this market in a phase prior to the start-up of the new power- generating units enabled it to secure a sustained raw-material supply network which it may utilize in the future. As previously mentioned, the Group has been making the Government and public opinion aware of the need to guarantee that biomass is viewed in a sustainable manner, avoiding the use of eucalyptus wood for biomass, as an alternative of its use in the production of tradable goods.

In addition, and despite the legal provisions that allow the Group to predict the stability of tariffs in the near future, there is a risk that the change in the sale of energy produced from renewable resources’ tariff will penalise those products. The constant search for the optimization of production costs and efficiency of the generating units is the way the Group seeks to mitigate this risk.

2.1.4. Context risks

The lack of efficiency in the Portuguese economy may have a negative effect on the Group’s ability to compete. This is more so, but not exclusively, in the following areas: i) Ports and railroads; ii) Roads particularly those providing access to the Group’s producing units; iii) Rules regarding territory management and forest fires; iv) Low productivity of the country’s forests; v) The majority of the Portuguese forest is not certified.

Annual Report 2010 84

2.2 Group’s risks and the way it develops its activities

2.2.1. Risks associated with debt and liquidity levels

Since it is completing a phase of significant capital investments at its industrial sites, the group felt the need to resort to the debt market in order to finance part of these investments. Given the medium/long term nature of the investments made, the group aimed for a debt structure aligned with the maturity of the associated assets. It thus contracted long-term debt for this purpose, whilst it has also refinanced the part of its debt which was to mature during 2010. Furthermore, the group contracted credit facilities, available at any moment, for an amount that guarantees adequate liquidity.

The liquidity of the contracted and interest-bearing financial liabilities will give rise to the following non discounted cash-flows, including interest, considering the remaining period up to their contractual maturity, at the date of the statement of financial position:

Amounts in Euro Until 1 month 1-3 m onths 3-12 months 1-5 years + 5 years Total As of 31 December 2010 Liabilities Interest-bearing liabilities Bond loans 753,306 1,735,222 11,838,768 581,149,839 - 595,477,135 Commercial paper 50,105,340 - - - - 50,105,340 Bank loans 38,312,227 - 6,481,294 84,713,517 116,876,174 246,383,212 Financial leases payables ------Accounts payable and other liabilities 138,069,453 38,148,372 24,563,082 - - 200,780,907 Other liabilities 176,292 528,875 1,410,333 24,471,153 - 26,586,653

Total liabities 227,416,617 40,412,469 44,293,478 690,334,509 116,876,174 1,119,333,247

As of 31 December 2009 Liabilities Interest-bearing liabilities Bond loans - 303,046,833 32,503,554 376,358,852 - 711,909,239 Commercial paper ------Bank loans 3,368,236 - 4,357,493 42,492,505 39,480,553 89,698,787 Financial leases payables ------Accounts payable and other liabilities 175,389,991 29,022,304 25,321,722 - - 229,734,017 Other liabilities 49,747 99,493 447,719 28,076,744 - 28,673,702

Total liabities 178,807,974 332,168,630 62,630,488 446,928,101 39,480,553 1,060,015,745

Considering the debt structure that it has contracted, with a maturity profile which is compatible with the financed assets, the Group believes that it has secured the capacity to generate future cash flows that will allow it to comply with its obligations, to guarantee a level of capital expenditure in accordance with its medium/long term plans and to maintain a return for shareholders in line with past performance.

This presumption is based on the Group’smedium/long term plans, which consider the following main assumptions: i. A price level for eucalyptus wood between 95% and 105% of that recorded in the year; ii. A market selling price of BEKP between 70% and 100% of that recorded in the year; iii. A market selling price of UWF paper between 95% and 110% of that recorded in the year; iv. A net-debt cost between 90% and 110% of that recorded in the year; v. A production level for eucalyptus at the woodlands owned or operated by the group, of BEKP, of UWF paper and power within the existing installed capacities.

Certain borrowings contracted by the Group are subject to financial covenants which, if not met, could entail their early repayment.

The following covenants are currently in force:

Loan Ratio

BEI Ambiente Tranche A Interest coverage = EBITDA 12M / Annualized net interest Indebtedness = Interest bearing liabilities / EBITDA 12 M

Portucel Bonds 2010-2015 Net Debt / EBITDA = Net Debt / EBITDA 12 M

Portucel Bonds 2010 / 2015 - 2nd emission Net Debt / EBITDA = Net Debt / EBITDA 12 M

Based on the financial statements detailed in this report, these ratios were as follows as at 31 December 2010:

Ratios 2010 Interest coverage 20.55 Indebtedness 2.12 Net Debt / EBITDA 1.63

Annual Report 2010 85

Considering the contracted limits, the group was comfortably complying with the limits imposed under the financing contracts. As of 31 December 2010 the Group presents a rate over 200% on the fulfilment of its covenants.

The group’s objectives regarding capital management (which is a wider concept than the capital shown in the statement of financial position) are: i. To safeguard the Group’s ability to continue in business and thus provide returns for shareholders and benefits for the other stakeholders; ii. To maintain a solid capital structure to support the expansion of its business; and iii. To maintain an optimal capital structure that enables it to reduce the cost of capital.

In order to maintain or adjust its capital structure, the Portucel Group can alter the amount of dividends payable to its shareholders, return capital to shareholders, issue new shares or sell assets to lower its borrowings.

In line with the sector, the group monitors its capital based on the gearing ratio. This ratio represents net interest-bearing debt as a percentage of the total capital employed. Net interest-bearing debt is calculated by adding the total amount of loans (including the current and non current portions as disclosed in the statement of financial position) and deducting all cash and cash equivalents. Total capital employed is calculated by adding shareholders’ equity (as shown in the statement of financial position) and net interest-bearing debt.

The gearing ratios as of 31 December 2010 and 2009 were as follows:

Amounts in Euro 2010 2009 Total loans (Note 29) 820,946,907 752,296,731 Cash and cash equivalents (Note 29) (133,958,910) (52,549,252) Treasury shares at their market value (note 24) (34,263,719) (29,792,574) Net debt 652,724,278 669,954,905

Equity, excluding treasury shares 1,330,290,673 1,297,344,075 Equity 1,983,014,951 1,967,298,980

Gearing 32.92% 34.05%

2.2.2. Interest rate risk

The cost of the Group’s financial debt is indexed to short-term reference interest rates, which are reviewed more than once a year (generally every six months for medium and long-term debt) added of negotiated risk premiums. Hence, changes in interest rates can have an impact on the Company’s earnings.

The Group resorted to derivative financial instruments to cover its interest rate risk, namely interest-rate swaps, with the purpose of fixing the interest rate on the Group’s borrowings within certain limits. The swaps contracted in 2005 matured during 2010.Therefore, as at 31 December 2010 there is no interest rate hedging in place.

On 31 December 2010 and 2009, the detail of the financial assets and liabilities with interest rate exposure, taking in consideration the maturity or the next settlement date was as follows:

Annual Report 2010 86

Amounts in Euro Until 1 month 1-3 months 3-12 months 1-5 years + 5 years Total As of 31 December 2010 Assets Non-current Available-for-sale financial assets ------Other non-current assets ------Currents Cash and cash equivalents 133.958.910 - - - - 133.958.910

Total Financial Assets 133.958.910 - - - - 133.958.910

Liabilities Non-current Bearing liabilities 200.000.000 118.125.000 415.000.000 - - 733.125.000 Other non-current liabilities ------Currents Other bearing liabilities 88.125.000 - 3.125.000 - - 91.250.000

Total Financial Liabilities 288.125.000 118.125.000 418.125.000 - - 824.375.000

Accumulated difference (154.166.090) (272.291.090) (690.416.090) (690.416.090) (690.416.090)

Amounts in Euro Until 1 month 1-3 months 3-12 months 1-5 years + 5 years Total As of 31 December 2009 Assets Non-current Available-for-sale financial assets ------Other non-current assets ------Currents Cash and cash equivalents 52.549.252 - - - - 52.549.252

Total Financial Assets 52.549.252 - - - - 52.549.252

Liabilities Non-current Bearing liabilities - - 424.375.000 - - 424.375.000 Other non-current liabilities ------Currents Other bearing liabilities 3.126.206 300.000.000 28.185.471 - - 331.311.677

Total Financial Liabilities 3.126.206 300.000.000 452.560.471 - - 755.686.677

Accumulated difference 49.423.046 (250.576.954) (703.137.425) (703.137.425) (703.137.425)

An increase of 0.5% on the interest rates as of 31 December 2010 would have had an impact in the income statement of approximately Euro 3,900,000 excluding the effect of the derivative financial instruments contracted to hedge this risk.

2.2.2. Currency risk

Variations in the euro’s exchange rate against other currencies can affect the Group’s revenue in a number of ways.

On one hand, a significant portion of the Group’s sales is priced in currencies other than the Euro, namely in US dollar and other currencies with less relevance. The change of the Euro vis a vis these currencies can also have an impact on the Company’s future sales. On the other hand it is customary to set the price of BEKP on the world market in US dollars, and, as such, the change of the Euro against the US dollar can have an impact on the Group’s future sales regardless of the currency used (Euro or any other).

Furthermore, once a sale is made in a currency other than the Euro, the Group takes on an exchange risk up to the time it receives the proceeds of that sale, if no hedging instruments are in place. Therefore, Portucel’s assets present receivables exposed to currency risk permanently.

The Group holds an affiliated company in the USA, Soporcel North America, whose equity amounts to around USD 25 millions and is exposed to foreign exchange risk. Besides this operation, the Group does not hold investments in any materially relevant foreign operations whose net assets are exposed to foreign exchange risk.

Occasionally, when considered appropriate, the Group manages foreign exchange risks through the use of derivative financial instruments, in accordance with a policy that is subject to periodic review, the prime purpose of which is to limit the exchange risk associated with future sales and accounts receivable priced in currencies other than the euro.

The table below shows the Group exposure to foreign exchange rate risk as of 31 December 2010, based on the financial assets and liabilities that amounted to a net asset of Euro 53,961,254 converted at the exchange rates as of that date (31 December 2009 Euro 28,116,728) as follows:

Annual Report 2010 87

United States British Pound Polish Zloty Swedish Krona Czech Koruna Swiss Franc Danish Krone Hungarian Australian Amounts in Foreign Currency Dollar Florim Dollar As of 31 December 2010 Assets Cash and cash equivalents 43,778 38,577 40,309 - 10 11 5,511 - - Receivables 53,601,739 16,026,642 4,245,538 1,326,797 264 2,595,778 1,520,999 5,160,001 96,887 Available-for-sale financial assets ------Other assets ------Total Financial Assets 53,645,517 16,065,219 4,285,847 1,326,797 274 2,595,789 1,526,510 5,160,001 96,887

Liabilities Bearing liabilities ------Payables (7,847,078) (1,355,221) (310,266) (136,628) (87,660) (1,025,407) (622,428) (67,508) (3,042) Total Financial Liabilities (7,847,078) (1,355,221) (310,266) (136,628) (87,660) (1,025,407) (622,428) (67,508) (3,042)

Net financial position 45,798,439 14,709,998 3,975,581 1,190,169 (87,386) 1,570,382 904,081 5,092,493 93,845

As of 31 December 2009 Total Financial Assets 45,118,596 10,044,396 766,757 - 845 722,599 210,922 14,527 45,005 Total Financial Liabilities (17,041,227) (2,301,637) (115,008) (16,157) (8,316) (1,101,892) (238,531) (1,109) (2,298) Net financial position 28,077,369 7,742,759 651,749 (16,157) (7,471) (379,293) (27,609) 13,418 42,707

As of 31 December 2010 a negative variation of 5% of all currency rates to euro would have a negative impact on results of Euro 2,569,584 (as of 31 December 2009 Euro 1,804,874 negative) excluding the effect of the derivative financial instruments to hedge foreign exchange risks (Note 31), which would cancel this variation.

2.2.3. Credit risk

The Group is exposed to credit risk in the credit it grants to its customers and, accordingly, it has adopted a policy of managing such risk within preset limits, through the negotiation of a credit insurance policy with a specialized independent company.

Sales that are not covered by credit insurance are subject to rules which ensure that sales are made to customers with a satisfactory credit history and are within reasonable exposure limits and approved for each costumer.

As of 31 December 2010 and 31 December 2009, accounts receivable from customers showed the following ageing structure, considering the due dates for the open balances:

Amounts in Euro 2010 2009

Not overdue 131,370,138 115,737,262 1 to 90 days 27,195,090 26,454,747 91 to 180 days 2,548,492 2,479,113 181 to 360 days 2,106,739 1,318,436 361 to 540 days 346,987 699,734 541 to 720 days 126,076 115,564 more than 721 days 123,200 852,424

163,816,723 147,657,280 Litigation - doubtful debts 2,285,539 1,479,332 Impairments (1,999,809) (1,389,949) Net receivables balance (Note 21) 164,102,453 147,746,663 Limit of the negotiated credit insurance 133,215,188 97,421,295

The amounts shown above correspond to the open items according to the contracted due dates. Despite some delays in the liquidation of those amounts, that does not result, in accordance with the available information, in the identification of impairments further than the ones considered through the respective losses. These are identified using the information periodically collected about the financial behaviour of the Group customers, which allow, in conjunction with the experience obtained in the client portfolio analysis and with the history of credit defaults, in the share not attributable to the insurance company, to define the amount of losses to recognise in the period.

The guarantees in place for a significant part of the open and old balances, justify the fact that no impairment has been recorded for those balances. The rules defined by the credit risk insurance policy applied by the Group, ensure a significant coverage of all open balances.

As of 31 December 2010 and 31 December 2009, the accounts receivable from customers according to their respective business areas showed the following ageing structure, considering the due dates for the open balances:

Amounts in Euro Pulp and paper Energy Forestry Unallocated Total Not overdue 117,932,023 12,935,005 466,769 36,341 131,370,138 1 to 90 days 21,226,052 4,439,835 1,516,166 13,038 27,195,091 91 to 180 days 568,248 - 1,980,244 - 2,548,492 181 to 360 days - - 2,092,079 14,660 2,106,739 361 to 540 days - - 16,251 330,736 346,987 541 to 720 days 106,125 - 19,951 126,076 more than 721 days 109,225 - 13,975 - 123,200 139,941,673 17,374,840 6,105,435 394,775 163,816,723

Throughout 2009, the insurance credit limits set by the insurance company were significantly reduced as a result of the international financial crisis. As a response, the Portuguese Government made additional credit-guarantees available which allowed a temporary extension of the authorized limits. As of 31 December 2010, each insurance credit facility was available as follows:

Annual Report 2010 88

Amounts in Euro 2010 2009

Credit insurance facilities 274,783,861 173,634,500 Credit insurance granted by the Portuguese Government 69,375,000 36,377,000 344,158,861 210,011,500

The insurance credit limit available is greater than the total amount of credit balances. This does not imply that all trade balances are secure, due to the existence of limits per entity, which were not entirely used as at 31 December 2010.

The table below represents the quality of the Group’s credit risk, as of 31 December 2010 and 31 December 2009, for financial assets (cash and cash equivalents), whose counterparts are financial institutions (Credit rating by Standard & Poor’s):

Financial Institutions 31-12-2010 31-12-2009 Rating Eur o Eur o AA 610,549 346,222 A+ - 7,854,813 A 3,109,778 38,989,673 A- 1,954,603 1,227,842 AA- 90,523,660 2,577,819 BBB + 36,000,000 - Other 1,760,320 1,552,883 133,958,910 52,549,252

The caption “Others” relates to financial institutions with whom there are transactions of reduced relevance and relatively to which it was not possible to obtain the ratings with reference to the presented dates.

The following table shows an analysis of the quality of credit of the accounts receivable from customers relatively to which, considering the information available to the Group, no default or impairment loss was considered.

Amounts in Euro 31-12-2010 31-12-2009 Credit Credit Gross amount Insurance Gross amount Insurance Accounts receivable overdue but not impaired Overdue - less than 3 months 27,195,090 8,255,325 26,454,747 8,357,979 Overdue - more than 3 months 5,251,494 3,379 5,465,271 421,817 32,446,584 8,258,704 31,920,018 8,779,796

Accounts receivable overdue and impaired Overdue - less than 3 months - - - - Overdue - more than 3 months 1,999,809 - 1,389,949 - 1,999,809 - 1,389,949 -

The maximum exposure to the credit risk as at 31 December 2010 and December 31, 2009, is detailed in the following schedule. In accordance with the above-mentioned policies, the Group contracted a credit insurance policy for most of the accounts receivable from clients. As such, the Group’s exposure to the credit risk is considered to have been mitigated to within acceptable levels.

Amounts in Euro Maximum exposure 31-12-2010 31-12-2009 Non-current Available-for-sale assets 126,074 130,074

Current Receivables 245,067,566 219,668,009 Cash and cash equivalents 133,958,910 52,549,252

Credit risk exposures relating to off-balance sheet itens Commitments (Note 36.1) 32,914,147 22,922,529 Guaranties (Note 22) (18,948,939) (13,330,982) 13,965,208 9,591,547

Annual Report 2010 89

3. Important accounting estimates 3.5 Credit risk and judgments As mentioned before, the Group manages credit risks in its The preparation of consolidated financial statements requires receivables through risk analysis when granting credit to new that Group’s management make judgments and estimates that customers, and through regular review. affect the amount of revenue, costs, assets, liabilities and disclosures at balance sheet date. Due to the nature of the customers, the Group’s receivables portfolio does not lend itself to general credit ratings based on These estimates are influenced by Group’s management’s classification and analysis in terms of a homogeneous judgments, based on: (i) the best information and knowledge population. Hence the Group collects data on its customers’ of present events and in certain cases on the reports of financial performance through regular contact, as well as independent experts; and (ii) the actions which the Group through contacts with other entities with whom the Group does considers it may have to take in the future. However, on the business (e.g., sales agents). date on which the operations are realised, the outcome could be quite different from those estimates. Similarly, most of the Group’s receivables are covered by an insurance policy it contracted that limits the exposure in these The estimates and assumptions which present a significant receivables – generally - to the retention portion to be paid in risk of engendering a material adjustment to the book value of case of any incident, which varies based on the customer’s assets and liabilities in the following financial period are geographical location. The insurer’s acceptance of the Group’s presented below: credit portfolio and the premiums that the Group pays for that coverage are a good proof of the average quality of the 3.1 Impairment of Goodwill Group’s portfolio.

The Group tests annually whether has been any impairment in 3.6 Recognition of provisions and impairments goodwill, in accordance with the accounting policy described in Note 1.8. The recoverable amounts of the cash generating The Group is part in several lawsuits underway, for which, units are ascertained based on the calculation of their value-in- based in the opinion of its lawyers, a judgment is made to use. These calculations require the use of estimates. determine the booking of a provision for these contingencies.

On 31 December 2010, a potential worsening of 0.5% in the Impairment in accounts receivable are calculated essentially discount rate used in impairment tests of the various cash- based on accounts receivable’s ageing, customers’ risk profile generating units would mean an overall decrease of Euro and customers’ financial situation. If it had been calculated 69,300,300 in their assessed value, which would still be higher through the criteria set by the Portuguese tax legislation, the than its book value by 23%. impairment adjustments would have been increased by Euro 1,886,503. 3.2 Income tax

The Group recognizes additional tax assessments resulting from inspections undertaken by tax authorities.

When the final outcome of the above reviews is different from the amounts initially recorded, the differences will have an impact on corporate income tax and deferred taxes in the periods where such differences are identified.

On 31 December 2010, a potential increase of 0.5% in the effective income tax rate would mean an overall increase of Euro 1,288,700 in the income tax expense.

3.3 Actuarial assumptions

Liabilities relating to defined-benefit plans are calculated based on certain actuarial assumptions. Changes to those assumptions can have a material impact on the aforesaid liabilities.

On 31 December 2010, a potential decrease of 0.25% in the discount rate used in the actuarial assumptions would mean an overall increase of liabilities amounting Euro 6,073,557 in their assessed value.

The above mentioned changes had a negative impact of Euro 5,688,799, which was recorded in equity.

3.4 Fair value of biological assets

In determining the fair value of biological assets the Group used the discounted cash flows method considering account assumptions about the nature of the assets being valued (Note 1.9). Changes in these assumptions may have an impact on those assets.

As of 31 December 2010, an increase of 0.5% in the discount rate (5.5%) used to value those assets, would decrease their value by Euro 4,706,128.

Annual Report 2010 90

4. Segment Information

Segment information is presented for identified business segments, namely Forestry, Pulp, Paper and Energy. Revenues, assets and liabilities of each segment correspond to those directly allocated to them, as well as to those that can be reasonably attributed to those segments.

Financial data by operational segment for the year ended 31 December 2010 and 2009 is shown as follows:

2010 PULP STAND PULP AND PAPER FOR ELIMINATIONS / FORESTRY ALONE PRODUCTION ENERGY UNALLOCATED TOTAL

REV ENUES Sales and services - external 7,826,865 162,099,577 1,068,680,601 140,507,814 - 1,379,114,857 Sales and services - intersegment 206,746,746 - 57,134,337 (263,881,083) - Total revenue 214,573,611 162,099,577 1,068,680,601 197,642,151 (263,881,083) 1,379,114,857

PROFIT/(LOSS) Segmental profit 15,389,818 49,044,947 208,202,382 10,191,223 (5,011,640) 277,816,730 Operating profit -- -- -277,816,730 Financial costs - net - - - - (20,079,417) (20,079,417) Income tax - - - - (47,157,088) (47,157,088) Net profit before non-controlling interest -- -- -210,580,225 Non-controlling interest - - - - 7,855 7,855 Net profit -- -- -210,588,080

OTHER INFORM ATION

Segment assets 186,991,545 147,428,515 1,894,633,188 308,606,120 128,713,948 2,666,373,316 Financial investments - - 126,074 516,173 - 642,247 Total assets 186,991,545 147,428,515 1,894,759,262 309,122,293 128,713,948 2,667,015,563

Segment liabilities 7,173,756 16,117,594 1,028,131,492 237,547,365 74,542,389 1,363,512,596 Total liabilities 7,173,756 16,117,594 1,028,131,492 237,547,365 74,542,389 1,363,512,596

Capital expenditure 572,373 49,661,570 43,350,695 2,313,443 - 95,898,081 Depreciation 533,878 18,192,884 88,367,759 14,090,263 - 121,184,784 Provisions - - - - 1,165,032 1,165,032

2009 PULP STAND PULP AND PAPER FOR ELIMINATIONS / FORESTRY ALONE PRODUCTION ENERGY UNALLOCATED TOTAL

REV ENUES Sales and services - external 12,476,673 160,402,026 833,530,003 86,154,082 2,746,290 1,095,309,074 Sales and services - intersegment 123,678,423 - 54,912,432 (178,590,855) - Total revenue 136,155,096 425,079,516 833,530,003 141,066,514 (440,522,055) 1,095,309,074

PROFIT/(LOSS) Segmental profit 18,046,919 (6,961,187) 107,190,878 3,599,056 10,204,181 132,079,847 Financial costs - net - - - - (7,545,480) (7,545,480) Net profit before non-controlling interest -- -- -105,072,466 Non-controlling interest - - - - 7,094 7,094 Net profit -- -- -105,079,560

OTHER INFORM ATION

Segment assets 194,299,089 204,686,115 1,720,140,153 320,112,982 121,789,657 2,561,027,996 Financial investments - - 126,074 4,000 - 130,074 Total assets 194,299,089 629,684,709 1,295,141,559 320,112,982 121,919,731 2,561,158,070

Segment liabilities 6,832,735 34,130,092 1,025,080,734 224,284,297 273,843 1,290,601,701 Total liabilities 6,832,735 371,535,064 687,675,762 224,284,297 273,843 1,290,601,701

Capital expenditure 1,280,469 28,394,816 402,832,539 89,799,005 - 522,306,829 Depreciation 729,866 30,650,713 77,340,697 2,822,756 - 111,544,032 Provisions - - - - (21,464,011) (21,464,011)

During 2010, following the first time application of IRFS 8 – Operational Segments, the Group carried out an analysis of the presented segmental structure, standardizing it in accordance with the segmental analysis internally used by management. This analysis originated the re-statement of the 2009 figures.

Annual Report 2010 91

Sales and services rendered by region Amounts in Euro 2010 2009

Amounts in Euro 2010 2009 Cost of Inventories Sold and Consumed (517,223,456) (485,155,693) Variation in production (5,635,463) 1,347,874 Paper Cost of Services and Materials Consumed (336,907,043) (288,945,219) Europe 783,569,599 663,555,607 Payroll costs America 128,249,077 77,777,274 Remunerations Other 156,861,925 92,197,122 Statutory bodies (3,570,374) (3,616,097) 1,068,680,601 833,530,003 Other remunerations (93,400,533) (80,012,801) Pulp (96,970,907) (83,628,898) Europa 149,693,250 135,634,458 Social charges and other payroll cost America 1,692,772 388,987 Pension and retirement bonus - defined benefit Other 10,713,555 24,378,581 plans (Note 27) 1,171,690 (5,567,347) 162,099,577 160,402,026 Pension costs - defined contribution plans (Note Total 27) (3,666,192) (282,965) Europa 933,262,849 799,190,065 Contributions to Social Security (14,393,220) (15,996,641) America 129,941,849 78,166,261 Other payroll costs (13,161,610) (9,268,067) Other 167,575,480 116,575,703 (30,049,332) (31,115,020) 1,230,780,178 993,932,029 (127,020,239) (114,743,918) Other costs and losses Sales of the forestry and energy segments were made in the Membership fees (679,325) (754,063) Portuguese market. Losses on inventories (234,861) (1,081,053) Impairment losses on receivables (Note 23) (689,069) (344,385) In general, all major assets of the business segments are Impairment losses on inventories (Note 23) (6,012) (160,539) located in Portugal. Indirect taxes (1,275,357) (1,578,968) Shipment costs (1,392,084) (1,246,988) 5. Other operating income Water resources charges (1,098,185) (1,209,332) Cost w ith emission allow ances (6,367,702) (6,662,251) “Other operating income” is detailed as follows for the year Other operating costs (1,832,119) (2,819,183) ended 31 December 2010 and 2009: (13,574,714) (15,856,762) Provisions (Note 28) (1,165,032) 21,464,011 (1,001,525,947) (881,889,707) Amounts in Euro 2010 2009

During 2010, with the new combined-cycle power generating Supplementary income 827,624 2,566,892 unit fully working, natural gas consumption began being Grants - CO2 Emission allow ances (Note 6) 12,768,616 6,181,409 recognised as an expense with inventories sold and Reversal of impairments in current assets consumed, and not as services and materials consumed. (Note 23) 336,393 6,485,170

Gains on disposals of non-current assets 3,194,781 2,984,343 Payroll expenses are detailed as follows for the year ended 31 Gains on inventories - 496,728 December 2010 and 2009: Gains on disposals of current assets 1,739,151 - Government grants 1,871,029 1,502,652 Amounts in Euro 2010 2009 Ow n w ork capitalised 79,247 6,498,490 Remunerations 96,970,907 83,628,898 Other operating income 2,042,286 8,025,908 Social charges 14,393,220 15,996,641 22,859,127 34,741,592 Heathcare costs 783,818 1,120,461

Employee training 1,607,506 3,341,837 “Gains on disposals of non-current assets” result from the sale Social activities (including pensions) 3,326,169 6,514,254 of CO2 emission allowances. Insurances 2,927,980 2,859,084

Other 7,010,639 1,282,743 Gains from government grants mainly regard to research in 127,020,239 114,743,918 forestry and industrial activities, obtained by some subsidiaries, namely RAÍZ, PortucelSoporcel Florestal and The Decrease in employee training is mainly due to the Soporcel. training effort in 2009 as a preparatory phase to start the new

paper mill, which resulted in additional expenses in that year. 6. Operating expenses For the year ended 31 December 2010, the costs incurred with Operating expenses are detailed as follows for the year ended investigation and research activities amounted to Euro 31 December 2010 and 2009: 4,659,095 (31 December 2009: Euro 3,522,051).

7. Remuneration of Statutory Bodies

For the year ended 31 December 2010 and 2009, this heading refers to the fixed remuneration of the members of the corporate bodies and it is detailed as follows:

Amounts in Euro 2010 2009

Board of directors Portucel, S.A. 870,697 888,616 Members of Portucel board in other companies 2,080,406 2,228,027 Corporate bodies from other group companies 293,056 210,429 Stautory Auditor (Note 34) 275,507 241,425 Audit Board 41,208 47,600 General Assembly 9,500 - 3,570,374 3,616,097

Annual Report 2010 92

For the year ended 31 December 2010 the Group recognised past services costs related with pensions of five Board 10. Net financial costs members, as detailed in Note 27. Financial costs are detailed as follows for the year ended 31 8. Depreciation, amortisation and December 2010 and 2009: impairment losses Amounts in Euro 2010 2009 For the years ended 31 December 2010 and 2009, Interest paid on borrow ings depreciation, amortisation and impairment losses were as (21,535,218) (28,420,284) follows: Interest earned on investments 2,062,276 2,393,793 Dividends earned - 534,042 Amounts in Euro 2010 2009 Exchange rate differences 186,947 4,004,332 Gains / (losses) on financial instruments - trading (Note 31) 1,320,395 (4,197,736) Depreciation of property, plant and equipment Gains / (losses) on financial instruments - Buildings (14,478,839) (17,742,292) hedging (Note 31) (2,186,915) 7,785,198 Equipments (103,960,926) (90,977,271) Compensatory interest 167,638 10,322,136 Other tangible assets (2,279,290) (2,360,049) Other financial income (94,540) 33,039 (120,719,055) (111,079,612) Depreciation of intangible assets (20,079,417) (7,545,480) Industrial property and other rights (465,729) (464,420) (465,729) (464,420) In 2009 and previous years, interest on deferred payments (121,184,784) (111,544,032) related to additional tax payments (due to payments over the years of 1998 to 2003) and to tax contingencies both in Portugal and abroad, that were reversed in 2009 as they were 9. Changes in government grants found not to be due.

The liabilities with government grants evolued as follows: 11. Income Tax

Amounts in Euro 2010 2009 Portucel is taxed under the special tax regime applicable to Government grants groups of companies comprising all entities whose capital is Opening balance 40.637.301 48.038.831 held 90% or more and which meet the conditions foreseen in Utilizations (11.187.516) (4.461.468) articles 69 and following of the Portuguese Corporate Income (Adjustment) / Increase 31.244.940 (2.940.062) Tax Code (Código do Imposto sobre o Rendimentos de Pessoas Colectivas), since 1 January 2003. Closing balance (Note 30) 60.694.725 40.637.301

Companies included within the consolidation scope of the On 12 July 2006, the Group and API – Agência Portuguesa group of companies subject to this regime calculate and para o Investimento (currently designated AICEP – Agência recognise income tax (IRC) as though they were taxed on an para o Investimento e Comércio Externo de Portugal) entered individual basis. If gains are determined on the use of this into four investment contracts. These contracts comprised regime, they are recorded as income of the parent company financial and tax incentives amounting to Euro 74,913,245 and (Portucel). Euro 102,038,801, respectively, related to a total investment of Euro 914,600,000 In accordance with the prevailing legislation, gains and losses from Group companies and associates arising from the The contracts between Portucel, Soporcel and AICEP, include application of the equity method are deducted or added, tax and financial incentives of Euro 22,480,095 Euro respectively, from or to the net income for the period when 102,038,801 respectively, in a total amount of Euro calculating the taxable income for the period. 124,518,896. These incentives have all been recognised until 31 December 2010 in the share of the depreciation of the Dividends are considered when determining the taxable eligible investment, of Euro 41,868,430. income in the year in which they are received, if the assets are held for less than one year or if investments represent less The contract signed between AICEP and About the Future, for than 10% of the share capital. investments initially estimated at 482 million euros, which came to a total of 525 million, include the award of a tax Income tax is detailed as follows for the year ended 31 incentive of Euro 52,433,150 of which EUR 13,517,649 were December 2010 and 2009: already used as of 31 December 2010. Amounts in Euro 2010 2009 As of 31 December 2010, financial incentives of Euro 64,028,211 had already been received regarding the above Current tax (Note 22) 31,278,866 16,470,870 mentioned contracts, and an additional Euro 38,010,590 Provision for current tax (5,002,129) (10,734,243) related to the investments already completed will be received Deferred tax (Note 26) 20,880,351 13,725,274 and a tax incentive of Euro 38,915,501 will still be recognised. 47,157,088 19,461,901

The use of such incentives, since they were made available The provision for current tax is detailed as follows: was as follows: Amounts in Euro 2010 2009 Financial Tax incentives Amounts in Euro incentives Total (Excess)/understatement in the estimate for income tax (3,591,099) (1,694,760) 2006 - 7.905.645 7.905.645 Change in the estimate for additional payments (2,171,033) (8,223,012) 2007 18.014.811 4.737.655 22.752.466 Coporate Income Tax 2007 (settlement) 841,466 - 2008 9.045.326 5.696.016 14.741.342 Coporate Income Tax 2003 (settlement) 24,315 - 2009 3.862.707 1.720.719 5.583.426 Coporate Income Tax 2002 (repayment) - Soporcel (108,682) - Other 2,904 (816,471) 2010 10.945.586 15.937.709 26.883.296 (5,002,129) (10,734,243) 41.868.430 35.997.744 77.866.174

Annual Report 2010 93

The excess in the estimate for income tax mainly results from Amounts in Euro 2010 2009 the calculation of tax benefits with SIFIDE and RFAI, which have only been made upon delivery of the income tax Opening balance 230,003 231,358 statement. Other changes (5,393) 5,739

Net profit of the year (7,855) (7,094) In the years ended 31 December 2010 and 2009, the reconciliation of the effective income tax rate was as follows: Closing balance 216,755 230,003

Amounts in Euro 2010 2009 Non-controlling interests relate to RAÍZ – Instituto de Investigação da Floresta e Papel (Forest and Paper Research Profit before tax 257.737.313 124.534.367 Municipal surcharge 1,50% 3.866.060 1,50% 1.868.016 Institute), in which the Group holds 94% of the capital and State Surcharge 2,50% 6.443.433 0,00% - voting rights. The remaining 6% are held by equity holders Differences (a) (6,98%) (17.995.440) (0,87%) (1.083.834) external to the Group. Impact of the change in the income tax rate 4,40% 11.348.545 0,00% - Provision for current tax (1,94%) (5.002.129) (8,62%) ( 10.734.243) Impairment and reversal of provisions 0,00% - 0,00% - Tax benefits (6,18%) (15.937.709) (1,38%) ( 1.721.629) 14. Appropriation of previous years’ 18,30% 47.157.088 15,63% 19.461.901 profit

(a) This amount is made up essentially of : Appropriations made in 2010 and 2009 over the 2009 and 2010 2009 2008 net profits were as follows: Capital gains / (losses) for tax purposes (21.237.952) (530.372) Capital gains / (losses) for accounting purposes (10.510.329) (6.571.388) Amounts in Euro 2009 2008 Taxable provisions (20.874.325) 2.083.515 Tax benefits (635.449) (411.632) Compensatory interests - - Distribution of dividends (excluding treasury shares) 62,076,765 79,006,792 Effect of pension Plans (1.380.812) 2.428.820 Legal reserves 4,675,621 5,335,628 Other (13.252.599) 5.049.565 Net income from prior years 38,327,174 46,731,803 (67.891.466) 2.048.508 105,079,560 131,074,223 Tax Effect (26.50%) (17.991.238) 542.855

Tax losses from previous years 16.806 6.506.757 Tax Effect (26.50%) 4.202 1.626.689 The resolution for the appropriation of the 2009 net profit, (17.995.440) (1.083.834) passed at Portucel’s General Meeting held on 15 March 2010, was based on the net profit for the year as defined by the accounting principles generally accepted in Portugal In Portugal, the annual tax returns are subject to review and (Portuguese GAAP). The difference in net profit between the potential adjustment by tax authorities for a period of up to 4 two standards, totalling Euro 33,623,766 (2008: Euro years. However, if tax losses are utilised, these may be subject 24,361,661) was transferred to retained earnings. to review by the tax authorities for a period of up to 6 years. On 14 April 2010, a dividend of Euro 0.0825 per share was In other countries where the Group operates, these periods distributed, amounting to Euro 63,318,750. This amount are different and, in most cases, higher. includes dividends of Euro 1,241,985 attributed to group subsidiaries, which own the shares disclosed as treasury The Board of Directors believes that any reviews/ inspections shares in these financial statements, and that were transferred by tax authorities will not have a material impact on the to retained earnings. consolidated financial statements as of 31 December 2010. The income tax returns of Portucel and Soporcel up to 2008 On 27 December 2010, considering the Group’s levels liquidity have already been reviewed and the inspection over 2009 is and the level of accumulated distributable reserves, the currently underway. General Assembly decided on the distribution of reserves amounting to to Euro 120,037,000 (EUR 0.1564 per share). 12. Earnings per share This includes Euro 2,354,502 attributable to shares held by subsidiaries of Portucel Group, which in these consolidated Earnings per share were determined as follows: financial statements are recognized as treasury shares and whose corresponding dividend is not considered. Amounts in Euro 2010 2009 Considering the referred distribution, the total amount Profit attributable to the Company's shareholders 210,588,080 105,079,560 distributed to shareholders in 2010 amounted to EUR 179,759,263, equivalent to Euro 0.2389 per share. Total number of issued shares 767,500,000 767,500,000 Treasury shares - yearly average (Note 25) (15,054,358) (14,964,064) 752,445,642 752,535,936 15. Goodwill Basic earnings per share 0.280 0.140 Diluted earnings per share 0.280 0.140 Goodwill was determined following the acquisition of 100% of Since there are no convertible financial instruments over the share capital of Soporcel – Sociedade Portuguesa de Group shares, its earnings are undiluted. Papel, S.A., for Euro 1,154,842,000, representing the difference between the acquisition cost of the shares and the Changes over the average number of treasury shares are as respective shareholders’ equity as of the date of the first follows: consolidation, retroactive to 1 January 2001, adjusted by the 2010 2009 effect of attribution of the fair value to Soporcel’s property, Quant. Accumulated Quant. Accumulated plant and equipment. As of 31 December 2010 Soporcel’s net Treasury shares held on 1 January 15,054,358 13,406,947 Acquisitions equity amounted to Euro 786,700,000. January - 15,054,358 633,818 14,040,765 February - 15,054,358 943,657 14,984,422 March - 15,054,358 69,936 15,054,358 The goodwill generated at the acquisition of Soporcel was April to December - 15,054,358 - 15,054,358 deemed to be allocatable to the paper production cash Treasury shares held on 31 December - 15,054,358 1,647,411 15,054,358 generating unit.

13. Non-controlling Interests As at 31 December 2010, assets and liabilities related to pulp production were transferred to another Group company, as a The movements in non-controlling interests are detailed as result of a split. follows for the year ended 31 December 2010 and 2009:

Annual Report 2010 94

The book value of goodwill amounts to Euro 376,756,384, as it was amortised up to 31 December 2003 (transition date). As of that date, the accumulated depreciation amounted to Euro 51,375,870. From that date on, depreciation was ceased and replaced by annual impairment tests. If this amortisation had not been interrupted, as of 31 December 2009 the net book value of the Goodwill would amount to Euro 256,879,352 (31 December 2009: Euro 274,004,642).

Every year, the Group calculates the recoverable amount of Soporcel’s assets (to which the goodwill recorded in the consolidated financial statements is associated), based on value-in-use calculations, in accordance with the Discounted Cash Flow method. The calculations are based on past performance and business expectations with the actual production structure, using the budget for next year and projected cash flows for the next 4 years, based on a constant sales volume. As a result of the calculations, no impairment losses have been identified.

The main assumptions for the above-mentioned calculation were as follows:

Inflation rate 2% Discount rate (post-tax) 7.77% Production Grow th 0%

The discount rate presented above is a post-tax tax rate equivalent to a discount rate pre-tax of 10.56%, and has been calculated in accordance with the WACC (Weighted Average Cost of Capital) methodology, based in the following assumptions:

Risk-free interest rate 4.80% Equity risk premium (market and entity) 4.50% Tax Rate 29.00%

Debt risk premium 2.40%

Annual Report 2010 95

16. Other intangible assets

Over the year ended 31 December 2010 and 2009, changes in other intangible assets were as follows:

Industrial property CO2 emission and other rights licenses Amounts in Euro Total

Acquisition costs Amount as of 1 January 2009 1,896,278 3,651,700 5,547,978 Acquisitions - 6,181,410 6,181,410 Disposals - (6,343,800) (6,343,800) Adjustments, transfers and w rite-off's - (1,633,073) (1,633,073) Amount as of 31 December 2009 1,896,278 1,856,237 3,752,515 Acquisitions - 12,808,388 12,808,388 Disposals - (14,591,373) (14,591,373) Adjustments, transfers and w rite-off's - - - Amount as of 31 December 2010 1,896,278 73,252 1,969,530

Accumulated depreciation and impairment losses Amount as of 1 January 2009 (946,957) - (946,957) Amortizations and impairment losses (464,420) - (464,420) Disposals - - - Adjustments, transfers and w rite-off's - - - Amount as of 31 December 2009 (1,411,377) - (1,411,377) Amortizations and impairment losses (465,731) - (465,731) Disposals - - - Adjustments, transfers and w rite-off's 2,064 - 2,064 Amount as of 31 December 2010 (1,875,044) - (1,875,044)

Net book value as of 1 January 2009 949,321 3,651,700 4,601,021 Net book value as of 31 December 2009 484,901 1,856,237 2,341,138 Net book value as of 31 December 2010 21,234 73,252 94,486

Under the National Plan for the Allocation of CO2 Emission Rights (PNALE), the second period for the attribution of CO2 emission rights (2008-2012) started in January 2008, under which the following rights were allocated to the Portucel Group, through the joint publication nº 2836/2008, January 8, issued by the Ministry for Environment, Ministry for Planning and Regional Development as well as the Ministry of Economy and Innovation: Cacia Figueira da Foz Setúbal Total En e r g y Pu lp En e r g y Pu lp En e r g y Pu lp En e r g y Pu lp Ge r al PORTUCEL — Empresa Produtora de Pasta e Papel, S. A. - 32,608 - - - 35,646 - 68,254 68,254 SOPORCEL — Sociedade Portuguesa de Papel, S. A. - - - 56,467 - - - 56,467 56,467 ENERPULP — Cogeração Energética de Pasta, S. A. 98,590 - 85,807 - 65,832 - 250,229 - 250,229 PortucelSoporcel Cogeração de Energia, S.A. ----156,099 - 156,099 - 156,099 SPCG — Sociedade Portuguesa de Cogeração Eléctrica, S. A. ----389,833 - 389,833 - 389,833 About the Future - Empresa Produtora de Papel, S.A. -----85,123-85,12385,123

98,590 32,608 85,807 56,467 611,764 120,769 796,161 209,844 1,006,005

Annual Report 2010 96

17. Property, plant and equipment

Over the years ended 31 December 2010 and 2009, changes in “Property, plant and equipment”, as well as the respective depreciation and impairment losses, were as follows:

Buildings and other Equipments and Assets under Amounts in Euro Land constructions Other tangibles construction Total

Acquisition costs Amount as of 1 January 2009 102,975,011 387,002,828 2,584,232,682 270,797,022 3,345,007,543 Acquisitions 5,264,307 47,281,808 455,097,160 14,663,554 522,306,829 Disposals - (114,035) (4,605,536) - (4,719,571) Adjustments, transfers and w rite-off's (31,536) 43,807,749 65,791,998 (110,288,525) (720,314) Amount as of 31 December 2009 108,207,782 477,978,350 3,100,516,304 175,172,051 3,861,874,487 Acquisitions 400,553 22,579,326 58,675,235 14,242,967 95,898,081 Disposals - - (1,247,497) - (1,247,497) Adjustments, transfers and w rite-off's 301,133 (2,274,394) 164,116,300 (162,835,658) (692,619) Amount as of 31 December 2010 108,909,468 498,283,282 3,322,060,342 26,579,360 3,955,832,452

Accumulated depreciation and impairment losses Amount as of 1 January 2009 - (260,367,855) (1,864,592,002) - (2,124,959,857) Amortizations and impairment losses - (18,112,047) (97,129,476) - (115,241,523) Disposals - 114,035 4,605,536 - 4,719,571 Adjustments, transfers and w rite-off's - - (1,210) - (1,210) Amount as of 31 December 2009 - (278,365,867) (1,957,117,152) - (2,235,483,019) Amortizations and impairment losses - (23,032,004) (94,434,590) - (117,466,594) Disposals - - 1,247,497 - 1,247,497 Adjustments, transfers and w rite-off's - - (610) - (610) Amount as of 31 December 2010 - (301,397,871) (2,050,304,855) - (2,351,702,726)

Net book value as of 1 January 2009 102,975,011 126,634,973 719,640,680 270,797,022 1,220,047,686 Net book value as of 31 December 2009 108,207,782 199,612,483 1,143,399,152 175,172,051 1,626,391,468 Net book value as of 31 December 2010 108,909,468 196,885,411 1,271,755,487 26,579,360 1,604,129,726

The Group holds a stake of 8% on Soporgen – Sociedade Portuguesa de Geração de Electricidade e Calor, S.A., whose main activity is the production of steam and electric power, exclusively sold to Soporcel.

In 2009, with the start of operations in the new paper mill, the Group recognised as a finance lease contract the cost of the Precipitated Calcium Carbonate production unit, installed by Omya, S.A. at the industry site in Setúbal for the exclusive use of the new factory. This contract foresees the transfer of the ownership of the assets upon the end of the contract.

Following the above-mentioned agreements, the Group applies “IFRIC 4 – Determining whether an arrangement contains a lease”. By following this interpretation Property, plant and equipment – equipment and other tangibles was increased by Euro 58,003,950, from which the respective accumulated depreciation of Euro 34,161,456 (31 December 2009: Euro 29,714,344), was deducted as of 31 December 2010. As of 31 December 2010, the net book value of these equipments was Euro 23,842,494 (31 December 2009: Euro 28,289,606).

As of 31 December 2010 “Assets under construction” included Euro 485,321 (31 December 2009: Euro 33,870,075), related to advance payments and supplies of Property Plant and Equipment, under the scope of the investment projects being developed by the Group. These amounts are fully guaranteed by first demand bank guarantees, handed by the respective suppliers that are promoting the investments of the Group companies, in accordance with the implemented policies for the mitigation of credit risk.

Annual Report 2010 97

18. Biological Assets 20. Inventory

Over the years ended 31 December 2010 and 2009, changes As of 31 December 2010 and 2009, inventory comprised the in biological assets were as follows: following:

Amounts in Euro 2010 2009 Amounts in Euro 31-12-2010 31-12-2009

Am ount as of 1 January 118,289,970 122,827,050 Raw materials 84,293,382 78,334,676 Changes in fair value Finished and intermediate products 63,525,055 45,411,602 Logging in the period (21,058,399) (14,389,877) Grow th 6,950,100 5,289,007 Work in progress 22,409,182 17,768,938 New plantations 3,210,386 1,874,122 Byproducts and w aste 1,240,632 2,034,449 Other changes in fair value 3,110,559 2,689,668 Goods for resale 120,620 1,656,969 Total change s in fair value (7,787,354) (4,537,080) Advances to inventories' suppliers 1,310,810 2,062,184 172,899,681 147,268,818 Am ount as of 31 Decem ber 110,502,616 118,289,970

The amounts shown as other changes in fair value correspond As of 31 December 2010, inventories were located in the to changes (positive or negative) in the estimated volume of following countries: future wood harvests due to: new plantations, increase or decrease in the forest management efficiency and write-downs Amounts in Euro 31-12-2010 31-12-2009 as result of fires. Portugal 34,523,720 32,858,356 USA 14,642,837 8,656,268 19. Available-for-sale financial assets Germany 3,800,369 1,280,228 and investments in associates Netherlands 3,752,016 972,877 United Kingdom 2,600,955 827,875 19.1. Avaliable-for-sale financial assets Spain 2,428,754 151,270 Italy 871,019 - As at 31 December 2010 and 2009, this heading was detailed France 833,499 594,565 as follows: Sw itzerland 71,885 70,163

Subsidiaries % Held 31-12-2010 31-12-2009 63,525,055 45,411,602 Soporgen 8% - 4,000 Liaison Technologies 2% 126,074 126,074 The ammounts shown above are stated net of the respective 126,074 130,074 impairment losses, in accordance with the accounting policy The participation in Liaison Technologies is recorded at cost, described in note 1.13, and detailed in note 23. as the difference (gain) to its fair value is not material as at 31 December 2010. 21. Receivables and other current assets 19.2. Investments in associates As of 31 December 2010 and 2009, “Receivables and other In the years ended 31 December 2010 and 2009, the current assets” were detailed as follows: movements in “Investments in associates” were as follows: Amounts in Euro 31-12-2010 31-12-2009 Amounts in Euro 2010 2009 Accounts receivable 164,102,453 147,746,663 Amount as of 1 January --Accounts receivable-associated companies (Note 32) - 1,530 Dividends received (161.904) - Other receivables 45,450,689 17,610,919 Other changes in the associates' equity 678.077 - Derivative financial instruments (Note 31) 240,379 - Amount as of 31 December 516.173 - Accured income 1,752,337 300,274

Deferred costs 1,293,678 2,531,175 This caption includes the 8% stake in Soporgen – Sociedade 212,839,536 168,190,561 Portuguesa de Geração de Electricidade e Calor, S.A.. This company holds a gas power plant at the Figueira da Foz site The receivables showed above are net of impairment losses, that the Group, as mentioned in note 17, considers to be a in accordance with the policies described in Note 1.14, whose finance lease and recognises as such in the consolidated details are presented in Note 23. financial statements. As of 31 December 20010 and 2009, “Other receivables” were Although the share represents only 8% of the company’s detailed as follows: equity and respective voting rights, the Group recognizes this as an associated company as it can influence Soporgen’s Amounts in Euro 31-12-2010 31-12-2009 management decisions: Advance to employees 127,051 150,522 AICEP - Financial incentives to receive 38,199,792 6,891,182 1 – One of the five directors of the company is nominated in Other 7,123,846 10,569,215 representation of the Group. 45,450,689 17,610,919

2 – A significant part of Soporgen’s sales is made to the Group The movements in the balance with AICEP were as follows: (at least 10% of the associate’s revenues), and the rest, corresponding to electric energy, is sold to the EDP Group. Amounts in Euro 2010 2009

3 – The Group, as well as the remaining shareholders, is Amount as of 1 January 6,891,182 15,840,784 responsible for Soporgen’s contracted bank loan, in the Received in the year - (6,556,913) same proportion as its share (note 36). Increase/(adjustment) 31,308,610 (2,392,689) Amount as of 31 December 38,199,792 6,891,182

Annual Report 2010 98

Of this, Euro 38,010,590 relate to the incentives under the scope of the contracts signed with AICEP and described in Corporate income tax is detailed as follows: Note 9. The remaining relate to receivables under other Amounts in Euro 31-12-2010 31-12-2009 incentives also managed by this Agency. Corporate income tax (Note 11) 31,278,866 16,470,870 As of 31 December 2010 and 2009, “Accrued income” and Payments on account of corporate income tax (19,178,095) (9,788,935) “Deferred costs”, were as follows: Withholding tax (1,138,508) (1,366,454) Other receivables (32,395) (224,461) Closing balance 10,929,868 5,091,020 Amounts in Euro 31-12-2010 31-12-2009 Accrued income Discounts in purchases 118.550 122.643 Changes in provisions for additional tax assessments during Interest receivable 882.643 8.482 the years ended 31 December 2010 and 2009 were as follows Other 751.144 169.149 (Note 11): 1.752.337 300.274 Deferred costs Amounts in Euro 2010 2009 Maintenance and repairs 58.276 1.043.627 Prepayment of insurance policies 1.721 310.245 Amount as of 1 January 23,369,527 31,592,539 Other 1.233.681 1.177.303 Increase - 1,565,987 1.293.678 2.531.175 Decrease (2,171,033) (9,788,999) 3.046.015 2.831.449 Amount as of 31 December 21,198,494 23,369,527

22. State and other public entities On 31 December 2010 and 2009 the additional tax assessments include interest on deferred payments and are As of 31 December 2010 and 2009, there were no overdue detailed as follows: debts to the State and other public entities. Balances relating to these entities were as follows: Amounts in Euro 31-12-2010 31-12-2009

Additional assessment 2005- Portucel - IRC (RETGS) 11.467.446 11.467.446 Current Assets Additional assessment 2006- Portucel - IRC (RETGS) 9.279.414 9.521.726 Income Tax 2007 -Portucel IRC (Municipal surcharge) - 682.182 Amounts in Euro 31-12-2010 31-12-2009 Additional assessment 2007 - Portucel - IRC (RETGS) - 1.181.353 Other 451.634 516.820 State and other public entities 21.198.494 23.369.527 Value added tax - refunds requested 29,994,482 48,938,976 Value added tax - to recover 2,233,548 2,538,472 The reduction in the amount payable concerns the additional 32,228,030 51,477,448 assessment of 2006, amouting Euro 242,311 regarding the recognition of the value to be received by Portucel in respect As at 31 December 2010, the outstanding VAT refunds to such settlement, that was unduly paid and whose requested comprised the following, by month and by company: repayment was determined by the administrative claim submitted. Amounts in Euro Oct/2010 Nov/2010 Dec/2010 Total

Enerpulp 1,048,382 1,008,966 1,751,737 3,809,084 Portucel 3,404,917 6,443,233 1,412,015 11,260,166 Soporcel - 4,258,429 6,749,682 11,008,111 23. Impairment of non-current and About The Future - - 3,056,878 3,056,878 PortucelSoporcel Cogeração de Energia - 436,733 - 436,733 current assets Bosques do Atlântico - - 423,510 423,510 4,453,299 12,147,362 13,393,822 29,994,482 During the tears ended 31 December 2010 and 2009, changes in impairments were as follows: Up to the date of completion of this report, Euro 26,404,738 of these amounts had already been received. Impairment Adjustments Tangible Assets Inventories Receivables Other Amounts in Euro (Note 17) (Note 20) (Note 21) Receivables Total

As at 31 December 2009, the outstanding VAT refunds As of 1 January 2009 (7,632,093) (6,205,001) (1,531,558) (1,389,943) (16,758,594) Increases (Note 6) - (160,539) (99,399) (244,986) (504,924) requested comprised the following, by month and by company: Reversals (Note 5) 150,000 5,477,999 241,008 616,163 6,485,170 Direct utilisations 2,643,478 - - - 2,643,478 Transfers - - - - - Amounts in Euro Aug/2009 Sep/2009 Oct/2009 Nov/2009 Dec/2009 Total As of 31 December 2009 (4,838,615) (887,541) (1,389,949) (1,018,766) (8,134,871) Increases (Note 6) - (6,012) (553,064) (136,005) (695,081) Enerpulp - 834,466 881,508 812,084 790,014 3,318,072 Reversals (Note 5) - 284,602 51,791 - 336,393 Portucel 2,304,534 - - - - 2,304,534 Direct utilisations - - - - - Soporcel - - - 3,949,690 4,854,435 8,804,125 Transfers - - (108,587) - (108,587) About The Future - 2,077,921 2,439,452 2,685,552 3,954,146 11,157,071 As of 31 December 2010 (4,838,615) (608,951) (1,999,809) (1,154,771) (8,602,146) Bosques do Atlântico ----298,774298,774 *The details presented above are inclued under the respective headings as a deduction to The related acquisition cost Portucel Papel Setúbal ----23,056,40023,056,400 2,304,534 2,912,387 3,320,960 7,447,326 32,953,769 48,938,976 The total amount of impairments in tangible assets results from

the replacement of several equipments, related to the All these amounts have been received during the first-half of production of energy, located at the industrial sites held by the 2010. Group.

Current Liabilities

Amounts in Euro 31-12-2010 31-12-2009

State and other public entities Corporate income tax 10,929,868 5,091,020 Personal income tax - Withheld on salaries 5,526,025 1,038,453 Value added tax 7,475,821 23,941,815 Social Security 1,983,113 2,083,495 Additional tax assessments 21,198,494 23,369,527 Other 2,215,692 53,621 49,329,013 55,577,931

The amount of personal income tax witheld on salaries increased in 2010 as a result of the payment of annual performance bonuses for 2010 during the month of December.

Annual Report 2010 99

24. Share capital and treasury shares Amounts in Euro 2010 2009

Revaluation Reserve - Fair Value Portucel is a public company with its shares quoted on the As of 1 January (1,456,243) 5,244,545 Euronext Lisbon. Revaluation at Fair Value (652,632) 1,084,410 Tranfer to the income statement due to the maturity of the instruments (Note 10) 2,186,915 (7,785,198) As of 31 December 2010, Portucel’s share capital was fully As of 31 December 78,040 (1,456,243) subscribed and paid for; it is represented by 767,500,000 shares with nominal value of 1 Euro each, of which 15,054,358 Legal reserves are held as treasury shares. Under Portuguese Commercial Law, at least 5% of annual net These shares were mainly acquired during 2008, and the profit must be transferred to the legal reserve until it reaches at changes were as follows: least 20% of share capital. This reserve cannot be distributed unless Portucel is liquidated but can be drawn on to absorb 2010 2009 Quant. Amount Quant. Amount losses, after other reserves are exhausted, or incorporated in Treasury shares held in January 15,054,358 26,787,706 13,406,947 24,431,056 Acquisitions the share capital. January - - 633,818 913,170 February - - 943,657 1,342,513 March - - 69,936 100,967 Currency Translation Reserve April to December ------1,647,411 2,356,650 Treasury shares held in 31 Decem ber 15,054,358 26,787,706 15,054,358 26,787,706 This heading includes the exchange differences arising as a result of the conversion to Euros of the financial statements of The market value of treasury shares held on 31 December the Group companies expressed in foreign currency, at the 2010 amounted to Euro 34,263,719 (2009: Euro 29,792,574), rates of exchange prevailing at balance sheet date and are corresponding to an unitary value of Euro 2.276 (31 December detailed as follows: 2009: Euro 1.979). Market capitalisation as of this date amounted to Euro 1,746,830,000 compared to an equity, net of Amounts in Euro 31-12-2010 31-12-2009 non controlling interests of Euro 1,303,286,212. Currency translation reserve As of 31 December 2010, the shareholders with significant Soporcel North América (USD) 1.051.842 239.058 positions in the Company’s capital were as follows: Portucel Soporcel UK (GBP) (170.257) 2.509 Portucel Soporcel Afrique du Nord (MAD) (10) - Entitie s Nº of Share s % Equity 881.575 241.567 Seinpar Investments, BV 241,583,015 31.48% Seinpart - Participações, SGPS, S.A. 230,839,400 30.08% Other reserves and Prior years’ retained earnings Semapa, SGPS, S.A . 105,522,241 13.75% Group Semapa other entities 1,179,800 0.15% Bestinver Gestión, SA SGIIC 15,443,547 2.01% Under prevailing law, Portucel’s individual financial statements Treasury shares 15,054,358 1.96% Other Shareholders 157,877,639 20.57% are prepared in accordance with the accounting principles Total 767,500,000 100.00% generally accepted in Portugal (PGAAP). However, for the preparation of the consolidated financial statements, the IFRS As of 31 December 2009, the shareholders with significant as adopted by European Union are used. positions in the Company’s capital were as follows: As of 31 December 2010, the reconciliation between these two Entitie s Nº of Share s % Equity sets of accounts was as follows: Seinpar Investments, BV 241,583,015 31.48% Seinpart - Participações, SGPS, S.A . 230,839,400 30.08% Semapa, SGPS, S.A . 96,865,223 12.62% Equity / Retained Group Semapa other entities 9,686,818 1.26% Amounts in Euro earnings Net Profit Total Bestinver Gestión, SA SGIIC 15,443,547 2.01% Individual financial statements (PCGAP) 1.041.513.181 210.758.203 1.252.271.384 Treasury shares 15,054,358 1.96% Revaluation of tangible fixed assets 112.321.041 (177.978) 112.143.063 Other Shareholders 158,027,639 20.59% Investment financial incentives (60.694.725) - (60.694.725) Total 767,500,000 100.00% Non-controlling interest (224.610) 7.855 (216.755) Consolidated financial statements (IFRS) 1.092.914.887 210.588.080 1.303.502.967

25. Reserves and retained earnings As the individual financial statements are the relevant ones for the purpose of determining the distribution capacity of results, As of 31 December 2010 and 2009, this heading was detailed this capability is measured based on retained earnings and as follows: other reserves determined in accordance with Portuguese GAAP. It should be noted that transition to IAS / IFRS has Amounts in Euro 31-12-2010 31-12-2009 been made in the consolidated financial statements with reference to 1 January 2005 while the conversion of the Fair value reserve 78,040 (1,456,243) individual financial statements to the current Portuguese Legal reserve 47,005,845 42,330,224 GAAP was made with reference to 1 January 2010. This, Currency translation reserve 881,575 241,567 combined with different criteria and concepts between the two standards, justifies the difference the equity of the two sets of financial statements. Net profit: prior years 304,020,378 383,418,964 In the year ended 31 December 2009, the reconciliation 351,985,838 424,534,512 between these two sets of accounts is as follows:

Fair value reserve

As of 31 December 2010, the “Fair value reserve” of Euro Equity / 78,040, net of deferred taxes in the amount of Euro 31,489, Re t aine d represents the negative fair value of financial hedging Amounts in Euro earnings Net Profit Total instruments of Euro 109,529 (Note 31), recorded as described Individual financial statements (PCGAP) 1,073,056,480 93,512,391 1,166,568,871 in Note 1.11. Revaluation of tangible fixed assets 95,496,166 8,721,335 104,217,501 Other adjustments (2,838,740) 2,838,740 - Non-controlling interest (237,097) 7,094 (230,003) The movements occurred in this reserve in the year ended 31 Consolidated financial statements (IFRS) 1,165,476,809 105,079,560 1,270,556,369 December 2010 and 2009, are detailed as follows:

Annual Report 2010 100

On 31 December 2010 and 2009, the reserves available for distribution were detailed as follows:

Amounts in Euro 31-12-2010 31-12-2009 Retained earnings: prior years 178.976.096 223.180.763 178.976.096 223.180.763 Net profit for the period 210.758.203 93.512.391 Legal reserves (10.537.910) (4.675.620) 200.220.293 88.836.771 379.196.389 312.017.534

Annual Report 2010 101

26. Deferred Taxes

In the years ended 31 December 2010 and 2009, the changes in assets and liabilities as a result of deferred taxes were as follows:

As of 1 January Income Statement As of 31 December Equity 2010 2010 Amounts in Euro Increases Decreases

Temporary differences originating deferred tax assets Tax losses carried forward 218.900 189.273 - - 408.173 Taxed provisions 6.228.018 - (4.894.067) - 1.333.951 Fixed assets adjustments 36.986.656 15.491.724 - - 52.478.380 Retirement benefits 2.778.500 451.688 (58.557) - 3.171.632 Derivative Financial Instruments 1.981.284 - - (1.981.284) - Deferred accounting gains on inter-group transactions 4.725.573 5.967.361 - - 10.692.933 Valuation of biological assets 10.127.671 - (1.969.703) - 8.157.968 Depreciation of assets recognised under IFRIC 4 3.983.424 - (351.874) - 3.631.551 67.030.027 22.100.046 (7.274.201) (1.981.284) 79.874.588 Temporary differences originating deferred tax liabilities Revaluation of fixed assets (23.336.634) - 3.363.334 - (19.973.300) Retirement benefits (1.000.187) (63.747) - 69.909 (994.026) Derivative Financial Instruments - - - (109.529) (109.529) Adjustments to PGAAP - (29.745.883) - - (29.745.883) Fair Value of tangible fixed assets (232.991.369) - 232.991.369 - - Tax Benefits (89.442.118) - 27.354.185 - (62.087.933) Extension of the useful life of the tangible fixed assets (147.045.954) (209.139.056) - - (356.185.011) Deferred accounting losses on inter-group transactions (28.603.983) (76.209.759) - - (104.813.742) (522.420.245) (315.158.446) 263.708.888 (39.621) (573.909.424) Amounts presented on the statement of financial position Deferred tax assets 17.762.957 6.353.763 (2.091.333) (569.618) 21.455.769 Effect of the change in tax rate - 1.463.597 - 44.579 1.508.176 17.762.957 7.817.360 (2.091.333) (525.039) 22.963.945

Deferred tax liabilities (138.441.365) (90.608.053) 75.816.305 (11.390) (153.244.503) Effect of the change in tax rate - (11.814.631) - 60.175 (11.754.456) (138.441.365) (102.422.684) 75.816.305 48.785 (164.998.958)

In the measurement of deferred taxes as at 31 December 2010, the corporate income tax rate used was 28.75%. This rate includes the impact of the state tax surcharge introduced as part of the temporary austerity measures under the Stability and Growth Plan (Plano de Estabilidade e Crescimento - PEC), and passed in Law 12-A/2010, notwithstanding the fact that it is the company’s understanding that the reversal of the majority of the existing deferred taxes passed will take place in a period subsequent to that covered by the PEC, that is, after 2013.

As of 1 January Income Statement As of 31 December Equity 2009 2009 Amounts in Euro Increases Decreases

Temporary differences originating deferred tax assets Tax losses carried forward 56.498 162.402 - - 218.900 Taxed provisions 11.367.863 5.184.214 (10.324.059) - 6.228.018 Fixed assets adjustments 13.149.229 26.954.067 (3.116.640) - 36.986.656 Retirement benefits 2.509.658 268.843 - - 2.778.500 Derivative Financial Instruments - - - 1.981.284 1.981.284 Deferred accounting gains on inter-group transactions 7.594.094 - (2.868.522) - 4.725.573 Valuation of biological assets 15.681.948 8.507.386 (14.061.662) - 10.127.671 Depreciation in assets subject to IFRIC 4 3.842.014 368.113 (226.703) - 3.983.424 Financial Investment grants 11.785.472 - (11.785.472) - - 65.986.776 41.445.025 (42.383.058) 1.981.284 67.030.027 Temporary differences originating deferred tax liabilities Revaluation of fixed assets (28.751.256) - 5.414.623 - (23.336.634) Retirement benefits (905.943) (26.200) - (68.044) (1.000.187) Derivative Financial Instruments (7.135.436) - - 7.135.436 - Fair Value of tangible fixed assets (239.782.448) - 6.791.079 - (232.991.369) Tax Benefits (1.181.592) (88.260.526) - - (89.442.118) Extension of the useful life of the tangible fixed assets (118.800.677) (47.456.764) 19.211.486 - (147.045.954) Deferred accounting losses on inter-group transactions (82.074.832) (6.541.729) 60.012.579 - (28.603.983) (478.632.185) (142.285.220) 91.429.766 7.067.392 (522.420.245) Amounts presented on the statement of financial position Deferred tax assets 17.486.496 10.982.932 (11.231.511) 525.040 17.762.957

Deferred tax liabilities (126.837.529) (37.705.583) 24.228.888 1.872.859 (138.441.365)

In 2009 and 2010, deferred tax assets on tax losses relate to RAÍZ – Instituto de Investigação da Floresta e Papel.

Annual Report 2010 102

27. Pensions and other post- in this year and its future expectations, liabilities with pensions were measured using a technical rate of 5.00% as of 31 employment benefits December 2010.

27.1. Introduction The rate of the expected return on assets was determined based on the historical monthly returns over the last 20 years There are currently several retirement and survival pension for the different types of assets integrating the strategic supplement plans, and retirement bonus, in place in the allocation of the pension’s fund. companies included in the consolidation. For some categories of employees there are plans in addition to the ones described The following table presents a five-year historical information below, for which independent funds were also created to cover on the present value of liabilities, funds’ market value, non- these additional liabilities. financed liabilities and net actuarial gains/ (losses).

Under the prevailing Social Benefits Regulation, permanent Information related to the last five periods is as follows: employees of Portucel and its main subsidiaries with more than five years’ service (ten years for Soporcel, Portucel Amounts in Euro 2006 2007 2008 2009 2010 Present value of liabilities 150,565,514 141,020,542 143,268,871 149,262,005 116,568,257 Soporcel Florestal and RAÍZ) are entitled to a monthly Plan assets' fair value 116,518,915 124,711,410 118,768,323 129,743,758 102,854,501 retirement pension or disability supplement after retirement or Surplus / (deficit) (34,046,599) (16,309,132) (24,500,548) (19,518,247) (13,713,756) disability. Net actuarial gains/ (losses) 88,619 14,755,422 (9,849,636) 7,327,298 (128,931)

This is calculated according to a formula, which considers the During the year ended 31 December 2010, Portucel S.A. beneficiary’s gross monthly remuneration updated to the work presented to its employees a proposal to reshape the defined category at the date of retirement and the number of years of benefit pension plan to a defined contribution plan. service, up to a limit of 30 (limit of 25 to Soporcel, Portucel Soporcel Florestal and RAÍZ), including a guaranteed survivor Most of the employees accepted this proposal. pension to the spouse and direct descendants. This amendment took effect as of 1 November 2010, To cover this liability, externally managed pension funds were backdated to 1 January 2009 for the purpose of determining set up, and the funds’ assets are apportioned between each of the liability to be transferred. the companies. 27.3. Retirement and pension supplements Furthermore, some Group companies assumed the liability of a retirement bonus, which is equal to 6 months of salary, if the employee retires at the regular retirement age (65 years). The movements in liabilities with retirement and pensions plans in years ended 31 December 2010 and 2009 were as As of 31 December 2010 and 2009, the coverage of the follows: companies’ liabilities by the assets of the funds was as follows: Amounts in Euro 2010 2009 Amounts in Euro 2010 2009 Opening balance 146,483,533 140,759,242 Changes in assumptions (1,123,828) - Past services liabilities Curtailment (36,087,119) - - Active employees 69,670,296 105,713,775 Costs recognised in the Income Statement 8,611,374 11,791,178 - Retired employees 43,784,857 40,769,758 Pensions paid (3,355,640) (3,040,542) Market value of the pension funds (102,854,501) (129,743,758) Actuarial (gains)/losses (1,073,167) (3,026,345) 10,600,652 16,739,775 Retirement bonuses' liabilities 3,113,104 2,778,472 Closing balance 113,455,153 146,483,533 Unfunded liabilities 13,713,756 19,518,247

The funds set up to cover the above mentioned liabilities had On 31 December 2010, the liability related with the following movement in the years ended 31 December 2010 post-employment benefit plans for five members of Portucel’s and 2009: Board was Euro 5,571,507 (31 December 2009: Euro 4,533,046). Amounts in Euro 2010 2009

Opening balance 129,743,758 118,768,323 27.2. Assumptions used in the valuation of liabilities Curtailment (36,087,119) - Contributions made in the period 7,906,000 3,226,000 The actuarial studies carried out by an independent entity for Expected return in the period 5,281,785 6,496,006 the purpose of determining the accumulated liabilities as of 31 Actuarial gains/(losses) (difference betw een actual December 2010 and 2009 were based on the following and expected returns) (634,283) 4,293,971 assumptions: Pensions paid (3,355,640) (3,040,542) 2010 2009 Closing balance 102,854,501 129,743,758 Disability table EKV 80 EKV 80 Mortality table TV 88/90 TV 88/90 Wage grow th rate 2.00% 2.50% Contributions were made in the year considering the Technical interest rate 5.00% 5.50% information received from the actuaries with whom the Group Pensions grow th rate 1.50% 2,25% / 2,00% manages the funding needs of its several plans. A deficit recovery plan of the funding levels to the mandatory minimum defined by the applicable regulations is being carried out as The discount rates used in this study were selected over the applicable. return rates of a bonds’ portfolio, namely Markit iBoxx Eur Corporates AA 10. From the portfolio, bonds with adequate The average profitability of the funds in 2010 was 2.21% maturity and rating were selected according to the amount and (2009: 8.61%) period cash outflows that will occur in connection to the payment of the benefits to employees. The detail of the fund’s assets as at 31 December 2010 and 2009 was as follows: For the year ended 31 December 2010 the Group used a technical rate of 5.50% to calculate the costs related to current services. However, due to the behavior of the capital markets

Annual Report 2010 103

Amounts in Euro 31-12-2010 31-12-2009 Amounts in Euro 31-12-2010 31-12-2009 Non-current Bonds 53,164,975 76,036,351 Bond loans 550,000,000 350,000,000 Shares 22,318,402 29,527,341 Bank Loans 183,125,000 74,375,000 Liquidity 27,231,230 24,021,992 733,125,000 424,375,000 Property 139,864 13,610 Index Linked Bonds - 82,680 Expenses w ith the issue of bond loans (3,392,308) (3,346,732) Other aplications - short term 30 61,784 Expenses w ith the issue of other loans (35,785) (43,214) 102,854,501 129,743,758 (3,428,093) (3,389,946)

In the years ended 31 December 2010 and 2009 the effect in 729,696,907 420,985,054 the income statement of these plans was as follows: As of 31 December 2010 and 2009, current interest-bearing Amounts in Euro 2010 2009 debt was as follows: Defined Benefit Plans Current services 2,491,441 3,916,756 Amounts in Euro 31-12-2010 31-12-2009 Interest expenses 6,119,933 7,874,422 Current Return of the plan assets (5,281,785) (6,496,006) Bond loans - 325,000,000 Transfers and adjustments (4,894,440) 3,332 Bank loans - short-term 91,250,000 6,311,677 (1,564,851) 5,298,504 91,250,000 331,311,677 Defined Contribution Plans Changes in the plan 3,289,304 - Contribution to the plan 376,888 282,965 As of 31 December 2010 and 2009, the Group’s net debt was 3,666,192 282,965 as follows: Costs for the period 2,101,341 5,581,469 Amounts in Euro 31-12-2010 31-12-2009 The cost regarding contributions to the defined contribution plan since 1 January 2009 to 31 December 2010, amounting Interest-bearing liabilities to Euro 3,289,303 was also recognized in the year. This was Non-current 729,696,907 420,985,054 financed through the allocation of part of the fund to finance Current 91,250,000 331,311,677 the defined benefit plan, resulting in a further reduction in 820,946,907 752,296,731 defined benefit plan costs, registered as transfers and Cash and cash equivalents adjustments. Cash 45,562 42,935 Short term bank deposits 9,463,348 16,119,728 Current services include Euro 69,484 (31 December 2009: Other 124,450,000 36,386,589 Euro 67,121) related with three members of the Board. 133,958,910 52,549,252

27.4. Retirement bonuses Treasury shares at their market value (Note 24) 34,263,719 29,792,574

Some of the Group’s companies assumed the liability of the Interest-bearing net debt 652,724,278 669,954,905 payment of a retirement bonus, equal to 6 months of salary, if the employee retires at the regular age of retirement (65 years). The movements in this liability were as follows: As of 31 December 2010 and 2009, the interest-bearing liabilities of the Group comprised the following: Amounts in Euro 2010 2009 31-12-2010 Opening balance 2,778,472 2,509,629 Amounts in Euro Non-current Current Total Costs recognized in the Income Statement 393,161 268,843 Pensions paid (29,302) - Bond loans 546,607,692 - 546,607,692 Other changes (29,227) - Bank Loans 183,089,215 91,250,000 274,339,215 729,696,907 91,250,000 820,946,907 Closing balance 3,113,104 2,778,472 31-12-2009 Amounts in Euro Non-current Current Total

28. Provisions Bond loans 346,653,268 325,000,000 671,653,268 Bank Loans 74,331,786 6,311,677 80,643,463 In the year ended 31 December 2010 and 2009 changes in 420,985,054 331,311,677 752,296,731 provisions were as follows:

Legal Fiscal Other Total The evolution of the Group’s net debt in the years ended 31 Amounts in Euro claims claims December 2010 and 2009 was as follows:

As of 1 January 2009 1,917,090 2,393,392 41,313,979 45,624,461 Amounts in Euro 2010 2009 Increases 687,414 - 610,436 1,297,850 Direct utilisations (507,548) (2,393,392) (19,860,921) (22,761,861) As of 1 January 2010 2,096,956 - 22,063,494 24,160,450 As of January 1 669,954,905 459,665,981 Increases (Note 6) 2,361 10,966,340 11,775,562 22,744,263 Changes in value of treasury shares held and Reversals (Note 5) (667,610) - (20,911,621) (21,579,231) accumulated translation effects (7,695,968) (9,368,801) Direct utilisations - - (112,105) (112,105) Interest payable 22,258,740 33,108,907 As of 31 December 2010 1,431,707 10,966,340 12,815,330 25,213,377 Dividens paid and resreves distributed 179,759,263 79,006,792 Receipts related to investment activities (10,634,490) (16,260,936) The amount shown as “Others” relates to a provision for risks Interest receivable (7,042,208) (2,356,616) Payments related to investment activities 50,535,227 371,228,324 with other public entities which may originate a cash outflow in Net receipts of operating activities (244,411,190) (245,068,746) the future. As of December 31 652,724,278 669,954,905

29. Interest-bearing liabilities Bond loans

As of 31 December 2010 and 2009, non-current interest- During 2005, the Group issued five bond loans totalling Euro bearing debt comprised the following: 700,000,000. The 2005/2008 loan amounting to Euro 25,000,000 was repaid during 2008, and the 2005/2010 loan, of Euro 300,000,000 in March 2010.

Annual Report 2010 104

In December 2009, Portucel contracted a bond loan The repayment terms related to non-current loans show the designated “Obrigações Portucel 2010/2015” that was only following maturity profile: used on February 2010 amounting to Euro 100,000,000. The loan is indexed to the 3-month Euribor, with a designed 40% Amounts in Euro 31-12-2010 31-12-2009 repayment at the end of the fourth year, and the remaining Non-current 60% at maturity date. A spread is added to the market interest 1 to 2 years 164,077,381 6,250,000 rate according to the level of the Net Debt/EBITDA ratio. 2 to 3 years 219,702,381 162,410,714 3 to 4 years 59,702,381 209,285,714 In February 2010, Portucel contracted an additional bond loan 4 to 5 years 179,702,381 9,285,714 designated “Obrigações Portucel - 2010 /2015 - 2ª Emissão” 733,125,000 424,375,000 with an amount of Euro 100,000,000 indexed to the 6-month Euribor with a single reimbursement upon maturity, February As of 31 December 2010, the Group had available but unused 2015. credit lines amounting to Euro 32,450,714 (31 December 2009: Euro 256,660,714). The loans outstanding as of 31 December 2010, were as follows: Finance lease – IFRIC 4 Re fe r e nce Amounts in Euro Amount Maturity interest rate As of 31 December 2010 and 2009, in accordance with IFRIC Bond loans Portucel 2005 / 2012 150,000,000 Oct 2012 Euribor 6m 4, the Group has the following equipments under finance lease Portucel 2005 / 2013 200,000,000 May 2013 Euribor 6m plans: Portucel 2010 / 2015 - 2nd emission 100,000,000 Feb 2015 Euribor 6m 31-12-2010 Portucel 2010 / 2015 100,000,000 Mar 2015 Euribor 3m Acquisition Acumulated Net book 550,000,000 Amounts in Euro value depreciation value Equipment - Soporgen 44,003,950 32,269,564 11,734,386 Equipment - Omya 14,000,000 1,891,892 12,108,108 The loan amounting to Euro 150,000,000 is quoted in the 58,003,950 34,161,456 23,842,494 Euronext Lisbon under the heading “Obrigações Portucel 2005/2012”. As of 31 December 2010 the unit value of this 31-12-2009 bond was Euro 99.40 (31 December 2009: Euro 99.87). Acquisition Acumulated Net book Amounts in Euro value depreciation value Equipment - Soporgen 44,003,950 29,335,966 14,667,984 Non-current bank loans Equipment - Omya 14,000,000 378,378 13,621,622 58,003,950 29,714,344 28,289,606 Portucel contracted a bank loan of Euro 25,000,000 in January 2005 for a period of seven years. The loan will be repaid in 8 semi-annual instalments of Euro 3,125,000 each, the first of The non-current and current liabilities related to those which was due in July 2008. So far 5 semi-annual installments equipments are recorded under “Other liabilities” and were paid. The loan bears interest at a rate corresponding to “Payables and other current liabilities”, respectively, and are the Euribor for six months. detailed as follows:

In April 2009, Portucel has received Euro 65,000,000 related Amounts in Euro 31-12-2010 31-12-2009 to a credit facility which had been contracted during 2008 with the European Investment Bank (EIB) designated Portucel – Current 24,471,153 28,076,744 Non-current (Note 30) 2,115,500 596,958 Ambiente Tranche A. In March 2010, Portucel used two 26,586,653 28,673,702 contracted credit facilities with the European Investment Bank

(EIB) of Euro 30,000,000 and Euro 85,000,000 designated BEI The Group holds a stake of 8% on Soporgen – Sociedade – Ambiente Tranche B and BEI – Energy, respectively. Portuguesa de Geração de Electricidade e Calor, S.A., whose

main activity is the production of steam and electric power, The loan designated BEI – Ambiente Tranche A has a 10 year exclusively sold to Soporcel. maturity and will be repaid in 14 semi-annual instalments, the first of which will be due 3 years after the loan date, on June Soporcel has a call option for the remaining share capital of 15, 2012, amounting to Euro 4,642,857. The loan bears Soporgen until the end of the agreement to supply electric and interest at a rate corresponding to the Euribor for six months steam power, signed between Soporgen and Soporcel. The plus a variable spread associated to financial ratios. st settlement date of this option is on January 1 of each year

between 2010 and 2015, by pre-determined amounts. The loan designated BEI – Ambiente Tranche B has a 14 year maturity and it will be repaid in 18 semi-annual instalments, the In 2009, with the launch of the new paper mill, the Group first of which will be due on December 2012 and the last one recognized as a finance lease contract the cost of the on June 15, 2021, each of them amounting to Euro 1,666,667. Precipitated Calcium Carbonate production unit, installed by This loan bears interest at a rate corresponding to the Euribor Omya, S.A. at the industry site in Setúbal for the exclusive use for six months plus a fixed spread. of the new mill. This contract foresees the transfer of the

assets’ ownership to About The Future, S.A., upon its The loan designated BEI – Energy has a 14 year maturity and termination. it will be repaid in 24 semi-annual instalments, the first of which will be due on June 15, 2013 and the last one on December 15, 2024, each of them amounting to Euro 30. Payables and other current 3,541,667. This loan bears interest at a rate corresponding to liabilities the Euribor for six months plus a fixed spread. As of 31 December 2010 and 2009, “Payables and other These two loans are guaranteed by two banks. current liabilities” were detailed as follows:

In June 2010, Portucel contracted a commercial paper program amounting Euro 50,000,000, whose emissions are underwritten by a bank for a period of three years. On 28 December 2010, Portucel used the entire issue for a period of 35 days, maturing on 31 January 2011. Also in 28 December 2010, a Hot Money credit line of Euro 35,000,000 was hired, also maturing on 31 January 2011.

Annual Report 2010 105

Amounts in Euro 31-12-2010 31-12-2009 Other Financial Financial Financial interest- Instruments - instruments- Loans and asstes held- bearning Non financial Accounts payable to suppliers 119,182,565 120,889,983 trading hedging receivables for-sale liabilities Assets/liabilities Amounts in Euro Note 31.1. Note 31.2. Note 31.3. Note 19. Note 31.4. Accounts payable to suppliers of fixed assets 38,107,662 53,277,039 2010 Accounts payable to suppliers of fixed assets - leases (Note 29) 2,115,500 596,958 Assets Accounts payable - related parties (Note 32) 143,086 525,963 Financial assets held- for-sale - - - 126,074 - - Financial instruments derivatives (Note 31) 189,617 3,360,444 Other non - current Other creditors - CO2 Emission allow ances 6,316,312 5,160,311 asstes - - - - - 2,114,963,332 Current receivables 130,850 109,529 375,740,082 - - 175,945,696 Sales comissions 403,551 1,920,346 Total 130,850 109,529 375,740,082 126,074 - 2,290,909,028 Other creditors 2,581,605 1,196,604 Accrued costs 33,856,509 43,403,327 Liabilities Non-current interest- Deferred income 61,943,025 42,199,258 bearning liabilities - - - - 729,696,907 - 264,839,433 272,530,233 Other liabilities - - - - 24,471,153 203,926,091 Current interest- beraning liabilities - - - - 91,250,000 - State entities - - - - - 49,329,012 As of 31 December 2010 and 2009, “Accrued costs” and Current payables 189,617 - - - 184,167,136 80,482,680 “Deferred income” were detailed as follows: Total 189,617 - - - 1,029,585,196 333,737,783 2009 Assets Amounts in Euro 31-12-2010 31-12-2009 Financial assets held- Accrued costs for-sale - - - 130,074 - - Other non - current Payroll expenses 18,539,655 24,991,926 asstes - - - - - 2,141,541,917 Interests payable, including compensatory interest 4,057,165 4,031,811 Current receivables - - 220,739,813 - - 198,746,266 Total Energy, Gas and maintenance 5,656,207 8,431,541 - - 220,739,813 130,074 - 2,340,288,183

Other 5,603,482 5,948,049 Liabilities 33,856,509 43,403,327 Non-current interest- bearning liabilities - - - - 420,985,054 - Deferred income Other liabilities - - - - 28,076,744 182,120,062 Government grants (Note 9) 60,694,725 40,637,301 Current interest- beraning liabilities - - - - 331,311,677 - Other 1,248,300 1,561,957 State entities - - - - - 55,577,931 61,943,025 42,199,258 Current payables 1,379,160 1,981,284 - - 269,169,789 - Total 1,379,160 1,981,284 - - 1,049,543,264 237,697,993 As of 31 December 2010 and 2009, “Deferred income” on government grants was detailed per company as follows: Except for derivative financial instruments, the remaining financial instruments are recorded at cost on the grounds that Amounts in Euro 31-12-2010 31-12-2009 this is considered to be a reasonable approximation to their fair AICEP under investment contracts (Note 9) value. Portucel, S.A. 34,954,669 21,290,484 SoporcelPulp, S.A. 18,061,207 - Soporcel, S.A. 7,154,495 18,706,065 31.1. Fair value hierarchy 60,170,371 39,996,549 Othe r Portucel, S.A. 66,966 195,597 The following table presents the Group’s assets and liabilities Raiz 388,393 350,552 measured at fair value at 31 December 2010, according to the Enerforest, S.A. 58,558 70,270 following fair value hierarchies: Cofotrans, S.A. 10,437 24,333 524,354 640,752 i. Level 1: Fair value of financial instruments is based 60,694,725 40,637,301 on prices ruling on active, liquid markets at the date During the year ended 31 December 2010 and 2009, Grants – of the statemet of financial position; CO2 emission allowances had the following movements: ii. Level 2: Fair value of financial instruments is not determined on the basis of active market prices, but Amounts in Euro 2010 2009 rather recurring to valuation models. The main Grants - CO2 Emission allow ances inputs of the models used are observable in the Opening balance - - market, and Increase 12,808,389 6,181,410 Utilisation (12,808,389) (6,181,410) iii. Level 3: Fair value of financial instruments is not As of 31 December - - determined on the basis of active market prices, but rather recurring to valuation models, the main inputs 31. Financial assets and liabilities of which are not observable in the market

Amounts in Euro 2010 Level 1Level 2Level 3 Since its activities are exposed to a variety of financial and operational risk factors, the Group adopts a proactive Financial asstes at fair value through profit or loss approach to risk management, as a way to mitigate the Financial instruments-trading 130,850 - 130,850 - potential adverse effects associated with those risks, namely Financial instruments-hedging 109,529 - 109,529 - the risk arising from the price of pulp, foreign exchange risk 240,379 - 240,379 - and interest rate risk. Liabilities measured at fair value

In order to minimise the effects of exchange rate variations on Amounts in Euro 2010 Level 1Level 2Level 3 the exports of pulp and paper to non-European countries, financial instruments were contracted in 2008 and 2009 to Financial asstes at fair value through profit or loss hedge nearly all statement of financial position items Financial instruments-trading (189,617) - (189,617) - denominated in foreign currency, as well as for a part of the Financial instruments-hedging ---- projected sales subject to currency risk. (189,617) - (189,617) -

In addition and in order to hedge interest rate risk, interest rate 31.2. Financial instruments held for trading swaps associated with bond loans have been contracted since 2005. All these instruments matured during 2010. As of 31 December 2010 and 2009, the fair value of derivative financial instruments (Note 1.11) was as follows: The reconciliation of the consolidated statement of financial position with the various categories of financial assets and 31-12-2010 31-12-2009 liabilities included therein is detailed as follows: Amounts in Euro Notional Positive Negative Net Net

Trading Foreign exchange forw ards 72,128,987 130,850 (189,617) (58,767) (1,379,160) 72,128,987 130,850 (189,617) (58,767) (1,379,160)

The Group has a currency exposure on sales invoiced in foreign currencies, namely US dollars (USD) and pounds

Annual Report 2010 106

sterling (GBP). Since the Group’s financial statements are translated into Euro, it runs an economic risk on the Additionally, in order to hedge Soporcel North America’s conversion of these currency flows to the Euro. The Group is shareholders’ equity denominated in USD, in May 2010 an also obliged, albeit to a lesser degree, to make certain exchange translation forward instrument of Euro 25,050,000 payments in those same currencies which, for currency was contracted for 6 months and renegotiated in November exposure purposes, act as a natural hedge. Thus, the hedge is 2010 for an additional period of 6 months. As of 31 December aimed at safeguarding the net value of the statement of its fair value was positive of Euro 109,529. financial position items denominated in foreign currencies against the respective currency fluctuations. As of 31 December 2010 the fair value of all hedged financial instruments was positive by Euro 109,529 that was recognised The hedging instruments used in this operation are foreign in shareholders’ equity. exchange forward contracts covering the net exposure to the foreign currencies at the time the invoices are issued, for the 31.4. Credit and receivables same maturity dates and the same amounts of these documents in such a way as to fix the exchange rate These amounts are initially recognised at fair value, and associated with the sales. The nature of the risk hedged is the subsequently measured at amortized cost less any impairment book exchange rate variation recorded on sales and losses identified during the course of the credit risk analysis of purchases expressed in foreign currencies. At the end of each the credit portfolios held (Note 23). month, customer and suppliers’ balances expressed in foreign currency are updated, with the gain or loss offset against the 31.5. Other financial liabilities fair value of the forwards negotiated. These items are recognised at their amortized cost, The net fair value of trading instruments – forwards – as at 31 corresponding to the value of the respective cash flows December 2010 is negative by Euro 58,767. discounted at the effective interest rate associated with each of the liabilities (Note 29). 31.3. Derivative financial instruments designated as hedging instruments 31.6. Net gains on financial assets and liabilities

As of 31 December 2010 and 2009, the fair value of derivative The effect in net income for the year of the financial assets and financial instruments designated as hedging instruments (Note liabilities held is detailed as follows: 1.11) was as follows: Amounts in Euro 2010 2009 31-12-2010 31-12-2009 Amounts in Euro Notional Positive Negative Net Net Gain/ (loss) on loans and receivables 186,947 4,004,332

Hedging Gains / (losses) on financial instruments - hedging (2,186,915) 7,785,198 Foreign exchange forw ards - - - - (1,981,284) Gains / (losses) on financial instruments - trading 1,320,395 (4,197,736) Foreign exchange hedging - Future sales 18,747,194 109,529 - 109,529 - Interes t inc ome: 18,747,194 109,529 - 109,529 (1,981,284) From deposits and other receivables 2,062,276 2,393,793 Interest expense: As of 31 December 2010, hedging instruments showed a Financial liabilities measured at amortized cost (21,535,218) (28,420,284) positive fair value of Euro 109,259, related to a forward Other 73,098 10,889,217 instrument designed to hedge the exchange translation risk of Total net gains and losses (20,079,417) (7,545,480) Soporcel North America’s shareholder’s equity. The fair value of derivative financial instruments is included in Interest rate Swaps “Receivables and other current assets” (Note 21) and “Payables and other current liabilities” (Note 30). The cost of all of the borrowings contracted by the Group is indexed to short-term reference interest rates, in most cases to The movement in the balances recognised in the statement of the 6 month Euribor. With the aim of reducing the exposure to financial position (Notes 21 and 30) relating to financial unfavourable interest rate movements, the Group decided to instruments was as follows: enter into interest rate swap contracts for a part of its Fair value Fair value medium/long-term interest-bearing debt. variation variation Total (Trading) (Hedging) The risk hedged is the change in the cash flows associated Opening balance (1,379,160) (1,981,284) (3,360,444) with bond loans resulting from fluctuations in reference interest Maturity (Note 10) 1,320,393 2,186,915 3,507,308 rates (6-month Euribor). Decrease in fair value - (96,102) (96,102) The Group has been using Interest Rate Swaps (IRS) to Closing balance (58,767) 109,529 50,762 hedge this risk. As of 31 December 2010, there were no such contracts in place. As at 31 December 2010 and 2009, the derivative financial instruments previously summarised presented the following Foreign exchange options maturities: 31-12-2010 31-12-2009 Nominal value Maturity Type Fair value Fair value In addition to safeguarding the above-mentioned statement of Foreign exchange forw ards USD 32,777,000 26-Apr-2011 Trading 123,396 - financial position items subject to foreign exchange risk, the GBP 3,900,000 12-Apr-2011 Trading 7,455 - USD 40,057,000 12-May-2011 Trading (268,405) (338,615) Group has, since 2005, been hedging future sales budgeted GBP 11,267,000 12-May-2011 Trading 78,787 (1,040,545) for each financial year. (58,767) (1,379,160) Foreign exchange forw ards EUR 150,000,000 29-03-2010 Hedging - (762,218) Foreign exchange forw ards - In order to hedge the sales budgeted for 2010 subject to the Subsidiaries investments USD 25,050,000 26-11-2010 Hedging 109,529 - Foreign exchange forw ards EUR 75,000,000 27-Oct-2010 Hedging - (1,219,066) EUR/USD exchange rate, a number of hedging instruments 109,529 (1,981,284) (called zero-cost collars) were contracted at April and May 50,762 (3,360,444) 2010 amounting to USD 75 million. These collars have monthly checks in which there is only financial settlement in 32. Balances and transactions with the event that the weighted average exchange rate is higher than the call’s exercise price or lower than the put exercise related parties price. This instrument did not entail the payment of a premium and resulted in a net cash receipt of Euro 71,170 for the year The following is a breakdown of related parties’ balances as of ended 31 December 2010. 31 December 2010 and 2009:

Annual Report 2010 107

31-12-2010 31-12-2009 34. Audit fees Assets Liabilities Assets Liabilities Receivables Payables Receivables Payables In the period ended 31 December 2010 and 2009, expenses Amounts in Euro with statutory audits, other audit services and tax consultancy, were as follows: Semapa - 143,086 1,530 36,107

- 143,086 1,530 36,107 Amounts in Euro 2010 2009

In the year ended 31 December 2010 and 2009, transactions Statutory auditors services with related parties were as follows: Statutory audit services 275,507 241,425 Audit of foreign subsidiaries 118 119 14,339 2010 2009 Tax consultancy services 86,367 110,643 Sales and Consumed Sales and Consumed Other reliability assurance services 80 776 63,976 services materials services materials 560,769 430,383 Amounts in Euro rendered and services rendered and services The services described as tax consultancy and other, mainly Semapa 38,174 1,599,100 50,797 1,567,980 comprise of the support in complying with tax obligations, in 38,174 1,599,100 50,797 1,567,980 Portugal and abroad, as well as in services regarding the validation of investment expense claims to present to AICEP, to enable the receipt of the incentives contracted, as referred in note 9. 33. Environmental related expenditure The Board of Directors believes there are adequate Environmental costs procedures safeguarding the independence of auditors through the audit committee process analysis of the work As part of its business operations, the Group incurs in several proposed and careful definition of the work to be performed by environmental expenditure which, depending on their nature, the auditors. are capitalised or recognised as costs in the operating results for the year. 35. Number of employees

Environmental expenses incurred by the Group in order to As of 31 December 2010 the number of employees working for preserve resources or to avoid or reduce future damage, are the various Group companies was 2,331 (31 December 2009: capitalised when they are expected to extend the useful life or 2, 288), of which 286 were employed by About The Future, to increase the capacity, safety or efficiency of other assets S.A.. held by the Group. 36. Commitments The expenditures capitalized and expensed in the year ended

31 December 2010 and 2009 were as follows: 36.1. Commitments in favour of third-parties Amounts in Euro 31-12-2010 31-12-2009 As of 31 December 2010 and 2009, commitments assumed by Oil boiler generator 576,931 - the Group were as follows: Recovery boiler - 5,807,485 Increase in the capacity of the effluents treatment equipment 18,731 93,640 Facilities and security Improvement 42,872 - Amounts in Euro 31-12-2010 31-12-2009 Other 47,118 197,737 685,653 6,098,862 Guarantees in favour of associated companies Guarantees Costs recognised in the year Soporgen, S.A. 333,333 444,444 333,333 444,444 Amounts in Euro 2010 2009 Guarantees in favour of third parties Liquid effluent treatment 7,543,581 2,800,820 Guarantees Residual managements 1,699,098 1,135,168 Portuguese Tax Authorities 27,917,200 17,117,821 Water resources tax (note 6) 1,098,185 1,209,332 Duties w ith w ood imports 3,531,019 3,330,746 Expenditure w ith electo filters 548,023 157,895 Solid w aste embankment 286,241 247,900 Simria 340,005 514,361 Sew age netw ork 103,150 42,247 AICEP - 361,082 Other 443,993 611,152 Other 792,590 1,154,075 11,722,271 6,204,514 32,580,814 22,478,085

32,914,147 22,922,529 CO2 emission rights On 3 May 2000, Soporcel, entered into a guarantee with a As part of the Kyoto Protocol, the European Union has bank under which it guarantees the full and timely compliance committed itself to reduce greenhouse gases’ emissions. with all financial and monetary obligations to that bank Within this context, a EU Directive was issued that foresees assumed by Soporgen – Sociedade Portuguesa de Geração the trade of CO2 emission rights. This Directive has been de Electricidade e Calor, S.A.. Accordingly, the bank can claim transposed to the Portuguese legislation, with effect from 1 repayment of up to 8% of Soporgen’s debt under that January 2005, and impacts, amongst other industries, on the guarantee whenever it is enforced. pulp and paper industry (Note 30). As of 31 December 2010, the amount to settle of this loan was As a result of negotiations of the National Plan for the Euro 4,166,663, and the amount of the guarantee assumed by Allocation of CO2 Emission Rights (PNALE), for the period Soporcel was Euro 333,333, which was reduced in the year as 2008-2012, the Group was awarded licences corresponding to a result of the reduction in the underlying loan. 531,049 tons for each year of the period (Note 16). With the start of the new units in the area of energy and in the Guarantees granted to the Portuguese Tax Authorities are production of paper, this attribution was revised upwards to detailed as follows (Note 37): Ton. 892,627.

Annual Report 2010 108

Amounts in Euro 31-12-2010 31-12-2009 37.1.2. Withholding tax in Spain – Euros 516,729 Income Tax 2005 - Additional Tax assessments 14,656,907 14,656,907 Income Tax 2006 - Additional Tax assessments 11,831,696 - From 2001 to 2004, ENCE – Empresa Nacional de Celulose, Income Tax 2007 - Municipal surcharge 852,727 852,727 S.A., a company in which Portucel held a 8% share until 2004, Stamp duty 2004 575,870 575,870 paid dividends totaling Euro 3,444,862, which were subject to Aggregated income tax 2003 - 1,032,317 withholding tax of Euro 516,729. 27,917,200 17,117,821 Portucel challenged the amount withheld on the basis that it 36.2. Purchase commitments violated the right of free establishment foreseen in the Treaty of Rome (dividends paid to an entity resident in Spain are not In addition to the commitments described in the preceding subject to withholding tax). The claim was rejected in February Note, purchase commitments assumed with suppliers at 31 15, 2008, and the Company appealed to court on April 29, December 2010 amounted to Euro 14.501.506 and referred to 2008. Through a court ruling of 26 October 2010, and following capital expenditure on Property, plant and equipment (total the decision of 3 June 2010 – case C-487/08 (European commitments at 31 December 2009: Euro 157,300,680). Commission vs. Kingdom of Spain) – the EU court of Justice concluded in favour of Portucel’s views in a similar case. As of 31 December 2010 and 2009, commitments relating to operating lease contracts comprised the following: As such, in 2011, measures will be taken in order to collect the refund of the excess amounts paid by Portucel, as recongised Amounts in Euro 31-12-2010 31-12-2009 by Spanish courts.

Due date 37.1.3. Corporate income tax (IRC) 2007– Euro 1,472,351 2010 - 1,436,589

2011 1,533,053 1,205,713 As a result of the tax inspection for the year ended 31 2012 1,549,391 664,824 December 2007 a correction of Euro 937,116 was raised (paid 2013 898,107 222,472 by Portucel on 24 February 2010). Portucel claimed against 2014 600,959 - corrections of Euro 12,397 and against correction of Euro 2015 325,786 - 1,459,954 related to contracted tax incentives due for 4,907,296 3,529,598 Soporcel’s investment in a second paper machine, whose use the tax authorities claim was unlawful as there was no taxable income in 2005 and 2006. As at 17 January 2011 the Court 37. Contingent assets ruling was not favourable to the Company’s views and it presented an appeal on 31 January 2011. 37.1. Tax matters 37.1.4. Stamp tax on loans – Share capital – Euro 77,000 37.1.1. Public Debt Settlement Fund On 7 April 2008 SPCG and PortucelSoporcel Cogeração de According to Decree-Law no. 36/93 of 13 February, the tax Energia S.A. lodged an appeal with the Almada Administrative debts of privatised companies relating to periods prior to the and Tax Court against the stamp duty of Euro 50,000 and Euro privatisation date (in the case of Portucel, 25 November 2006) 27,000, respectively, levied on the share capital increases are the responsibility of the Public Debt Settlement Fund. made by the aforesaid companies, on the grounds that such Portucel submitted an application to the Public Debt act is contrary to the provisions of the EU Directive no. Settlement Fund on 16 April 2008 requesting the payment by 69/335/EEC of the Council dated July 17, 1969, as amended the State of the tax debts raised by the tax authorities for by Directive 85/303/EEC of the Council dated June 10, 1985. periods before that date. In this context, the aforementioned Fund is liable for Euro 31,018,150, detailed as follows: The above-mentioned companies are awaiting the Court’s decision. Amounts 1st refund Outstanding Amounts in Euro Period Re que s te d 37.1.5. Municipal surcharge (RETGS) 2008 / 2009 – Euro Portucel Income Tax Germany 1998-2004 5,850,000 (5,850,000) - 1,062,068 Corporate Income Tax 2001 314,340 - 314,340 Corporate Income Tax 2002 625,033 (625,033) - In 2008 and 2009 Portucel presented the Income Tax form Value added tax 2002 2,697 (2,697) - with a Municipal surcharge corresponding to the sum of the Corporate Income Tax 2003 1,573,165 (1,573,165) - individual municipal surcharge of the companies included in Corporate Income Tax 2003 197,395 (157,915) 39,480 Corporate Income Tax 2004 the special tax regime applicable to groups of companies (w ithholding tax) 3,324 - 3,324 (RETGS) in accordance with the tax autorithies understanging, Corporate Income Tax 2004 766,395 - 766,395 (Circular Letter No. 20132 as of 14 April 2008). Corporate Income Tax 2005 (w ithholding tax) 1,736 (1,736) - Corporate Income Tax 2005 11,754,680 - 11,754,680 Nevertheless, Portucel believes this municipal surcharge Corporate Income Tax 2006 9,238,171 - 9,238,171 shoud correspond to 1.5% of the Group’s taxable income, as 30,326,936 (8,210,546) 22,116,390 stated by the Law nº2/2007 (Local Finance Law). Soporcel

Income Tax Germany 2002 169,219 - 169,219 Corporate Income Tax 2003 Due to this, Portucel presented a tax claim in order to collect (Replacement) 5,725,771 - 5,725,771 the refund of the excess amounts paid amounting to Euro Income Tax 2003 2,509,101 - 2,509,101 173,868 and Euro 888,200. Stamp duty 2004 497,669 - 497,669 8,901,760 - 8,901,760 39,228,696 (8,210,546) 31,018,150 Following the initial rejection of the claim, Portucel appealed to the Court on 14 May 2010 and 6 January 2011. In December 2009, the Group was informed by the Institute for Public Credit and Treasury Management of the eminent As at 2 February 2011 the Supreme Administrative Court payment of Euro 8,210,546 (Note 21), related to the amounts decided in favour of Portucel’s views, in a similar case. previously paid and unclaimed to the Tax Authorities. A similar Therefore, a successful outcome is expected for this claim. outcome for the remaining open amounts is expected once the legal and administrative processes are over. This amount was . received on 22 January 2010.

Annual Report 2010 109

37.1.6. Investment contract - AICEP Valuation/ 2010 2009 (depreciation) GBP (sterling pound) Regarding the contracts signed with AICEP and up to 31 Average exchange rate for the year 0.8579 0.8909 3.70% December 2010, a total amount of Euro 38,915,501 of tax Exchange rate at the end of the year 0.8572 0.8881 3.48% incentives is yet to be recognised. USD (american dollar) Average exchange rate for the year 1.3265 1.3948 4.90% 37.2. Non-tax matters Exchange rate at the end of the year 1.3377 1.4406 7.14% PLN (polish zloty) Average exchange rate for the year 3.9896 4.3216 7.68% 37.2.1. Public Debt Settlement Fund Exchange rate at the end of the year 3.9580 4.1040 3.56% SEK (sw edish krona) In addition to the tax matters described above, a second Average exchange rate for the year 9.5365 10.6122 10.14% Exchange rate at the end of the year 8.9809 10.2400 12.30% request to the Public Debt Settlement Fund was submitted on CZK (czech koruna) 2 June 2010, which called for the reimbursement of various Average exchange rate for the year 25.2550 26.4123 4.38% amounts, totaling Euro 136,243,939. These amounts related to Exchange rate at the end of the year 25.0000 26.3180 5.01% adjustments in the financial statements of the group after its CHF (sw iss franc) privatization, that had not been considered in formulating the Average exchange rate for the year 1.3807 1.5095 8.53% Exchange rate at the end of the year 1.2488 1.4827 15.78% price of such privatization as they were not included in the DKK (danish krone) documentation made available for consultation by the bidders. Average exchange rate for the year 7.4470 7.4459 (0.01%) Exchange rate at the end of the year 7.4532 7.4410 (0.16%) 37.2.2. Legal claims - BEKP Sales’ agency HUF (hungarian florim) Average exchange rate for the year 275.0925 280.0582 1.77% Exchange rate at the end of the year 277.9800 270.3500 (2.82%) In October 2009, the Group through its German subsidiary AUD (australian dollar) Portucel International Trading, Gmbh, set off two legal actions Average exchange rate for the year 1.4424 1.7722 18.61% 18.17% for undue agency contract termination, celebrated in Exchange rate at the end of the year 1.3074 1.5978 December 2007 with CPK S.A. and Celtejo, S.A. These legal actions amounted to approximately Euro 175,000 and aim at proper compensation of Portucel International Trading, Gmbh, for the expected gains, should the contracts had not been unilaterally terminated.

37.2.3. Infrastructure enhancement and maintenance fee

Under the licensing process nº 408/04 related to the new paper mill project, the Setubal city Council issued a settlement note to Portucel regarding an infrastructure increase and maintenance fee (“TMUE ") amounting to Euro 1,199,560, with which the company disagrees.

This situation regards the amount collected under this concept in the licensing process mentioned above, for the construction of a new paper mill in the industrial site of Mitrena, Setubal. Portucel disagrees with the amount charged and filled an administrative claim against it on 25 February 2008 (request 2485/08), followed by an appeal in Court against the rejection of the claim on 28 October 2008.

In the appeal, Portucel claims the cancelation of the settlement act, on the following grounds: (i) desproporcionality of the fee applied; (ii) it as the nature of a tax, that can not be imposed by the City Council and (iii) the absence of any consideration paid on their behalf by the Setubal City Council since it was Portucel that supported all costs regarding the urban infrastructure and maintenance, thus proving that the TMUE configures a true tax.

The decision of the Court is stil pending.

38. Exchange rates

The assets and liabilities of the foreign subsidiaries and associated companies expressed in a functional currency other than Euro were translated to Euro at the exchange rate prevailing on 31 December 2010.

The income statement transactions were translated at the average rate for the year. The differences arising from the use of these rates compared with the balance prior to the conversion were reflected under the Currency translation reserve in shareholders’ equity.

The rates used on 31 December 2010 and 2009, against the Euro, were as follows:

Annual Report 2010 110

39. Companies included in the consolidation

Percentage of capital held by Group companies Company Head office Directly Indirectly Total

Parent Company: Portucel – Empresa Produtora de Pasta e Papel, SA Setúbal - - -

Subsidiaries: Soporcel - Sociedade Portuguesa de Papel, SA Figueira da Foz 100.00 - 100.00 Soporcel Pulp - Sociedade Portuguesa de Celulose, SA* Figueira da Foz 100.00 - 100.00 CountryTarget SGPS SA* Setúbal 100.00 - 100.00 Sociedade de Vinhos da Herdade de Espirra - Produção e Comercialização de Vinhos, SA Setúbal - 100.00 100.00 Enerforest - Empresa de Biomassa para Energia, SA Setúbal - 100.00 100.00 Atlantic Forests, SA Setúbal - 100.00 100.00 Viveiros Aliança - Empresa Produtora de Plantas, SA Palmela - 100.00 100.00 Aflomec - Empresa de Exploração Florestal, SA Setúbal - 100.00 100.00 Cofotrans - Empresa de Exploração Florestal, SA Figueira da Foz - 100.00 100.00 Raiz - Instituto de Investigação da Floresta e Papel Aveiro - 94.00 94.00 PortucelSoporcel Floresta, SGPS, SA Figueira da Foz 50.00 50.00 100.00 Portucel Florestal – Empresa de Desenvolvimento Agro-Florestal, SA Setúbal - 100.00 100.00 Naturfungi, ACE Setúbal - 50.00 50.00 PortucelSoporcel Florestal – Sociedade para o Desenvolvimento Agro-Florestal, SA Setúbal - 100.00 100.00 Afocelca - Agrupamento complementar de empresas para protecção contra incêndios ACE Portugal - 64.80 64.80 Bosques do Atlantico, SL Spain - 100.00 100.00 PortucelSoporcel Pulp SGPS, S.A. Setúbal 100.00 - 100.00 EPFF - Empresa de Pasta de Figueira da Foz, S.A. Figueira da Foz - 100.00 100.00 CELSET - Celulose de Setúbal, S.A. Setúbal - 100.00 100.00 CELCA CIA - Celulos e de Cac ia, S.A . Cac ia - 100.00 100.00 Portucel International GmbH Germany - 100.00 100.00 PortucelSoporcel Papel, SGPS SA Setúbal 100.00 - 100.00 Soporcel North America Inc. USA - 100.00 100.00 About the Future - Empresa Produtora de Papel, SA Setúbal 0.01 99.99 100.00 Portucel Papel Setúbal, S.A. Setúbal - 100.00 100.00 Tecnipapel – Sociedade de Transformação e Distribuição de Papel, Lda Setúbal 56.00 44.00 100.00 PortucelSoporcel Sales & Marketing NV Belgium 25.00 75.00 100.00 PortucelSoporcel Fine Paper , S.A. Setúbal - 100.00 100.00 PortucelSoporcel España, SA Spain - 100.00 100.00 PortucelSoporcel International, BV Netherlands - 100.00 100.00 PortucelSoporcel France, EURL France - 100.00 100.00 PortucelSoporcel United Kingdom, Ltd United Kingdom - 100.00 100.00 PortucelSoporcel Italia, SRL Italy - 100.00 100.00 Soporcel 2000 - Serviços Comerciais de Papel, Soc. Unipessoal, Lda Figueira da Foz - 100.00 100.00 PortucelSoporcel Deutschland, GmbH Germany - 100.00 100.00 PortucelSoporcel Handels, GmbH Austria - 100.00 100.00 PortucelSoporcel Afrique du Nord Morocco - 100.00 100.00 PortucelSoporcel Poland SP Z O * Poland - 100.00 100.00 PortucelSoporcel Energia, SGPS SA Setúbal 100.00 - 100.00 SPCG – Sociedade Portuguesa de Co-Geração Eléctrica, SA Setúbal - 100.00 100.00 Enerpulp – Cogeração Energética de Pasta, SA Setúbal - 100.00 100.00 PortucelSoporcel Cogeração de Energia, SA Setúbal - 100.00 100.00 PortucelSoporcel Participações, SGPS SA Setúbal 100.00 - 100.00 Arboser – Serviços Agro-Industriais, SA Setúbal - 100.00 100.00 Empremédia - Corretores de Seguros, Lda Lisboa - 100.00 100.00 Socortel - Sociedade de Corte de Papel, SA Figueira da Foz - 100.00 100.00 Cutpaper - Transformação, Corte e Embalagem de Papel, ACE Figueira da Foz - 50.00 50.00 Headbox - Operação e Contolo Industrial, SA Setúbal - 100.00 100.00 EMA21 - Engenharia e Manutenção Industrial Século XXI, SA Setúbal - 100.00 100.00 Ema Cacia - Engenharia e Manutenção Industrial, ACE Cacia - 91.15 91.15 Ema Setúbal - Engenharia e Manutenção Industrial, ACE Setúbal - 92.56 92.56 Ema Figueira da Foz- Engenharia e Manutenção Industrial, ACE Figueira da Foz - 91.47 91.47 EucaliptusLand, SA * - 100.00 100.00 ImpactValue - SGPS, SA Setúbal 100.00 - 100.00 Portucel Moçambique - Sociedade de Desenvolvimento Florestal e Industrial, Lda Mozambique 25.00 75.00 100.00 Portucel Florestal Brasil - Gestão de Participações, Ltda Brazil 25.00 75.00 100.00 PortucelSoporcel Papel - Sales e Marketing, ACE Figueira da Foz 50.00 50.00 100.00 PortucelSoporcel Logistica de Papel, ACE Figueira da Foz 33.33 66.67 100.00 * Companies incorporated in 2010

Annual Report 2010 111

40. Subsequent events

40.1. Acquisition of Soporgen shares

On 8 February 2011, the Group, through its subsidiary Soporcel, S.A., acquired an additional 10% of the shares of Soporgen – Sociedade Portuguesa de Geração de Electricidade e Calor, S.A. previously held by Alstom, as well as the additional paid in capital with which that shareholder had contributed to the Company, for a total of Euro 755,526. Thus, the group now holds 18% of the share capital of Soporgen.

40.2. Acquisition of treasury shares

Through stock market operations on 22, 23, 24, 25 and 28 February and 1, 4, 7, 8 and 9 March 2011, Portucel acquired several lots of treasury shares, amounting to 770,380 titles, which are detailed as follows:

2011 Quant. Euro 22 February 23,000 57,673 23 February 165,000 410,976 24 February 150,000 372,835 25 February 65,000 163,371 28 February 170,000 430,561 1 March 2,000 5,140 4 March 45,000 142,173 7 March 40,000 101,630 8 March 55,000 140,085 9 March 55,380 141,003 770,380 1,965,447

Following these acquisitions, Portucel now holds directly and indirectly through its subsidiaries, 15,769,358 shares representing 2.062% of its share capital.

41. Note added for translation

The accompanying financial statements are a translation of financial statements originally issued in Portuguese. In the event of any discrepancies the Portuguese version prevails.

Annual Report 2010 112

Statutory Auditors Report in respect of the Consolidated Financial Information

Introduction

1 As required by law, we present the Statutory Auditors Report in respect of the Consolidated Financial Information included in the consolidated Board of Directors’ Report and the consolidated financial statements of Portucel – Empresa Produtora de Pasta e Papel, S.A., comprising the consolidated statement of financial position as at December 31, 2010, (which shows total assets of Euro 2,667,015,563, and a total shareholder's equity of Euro 1,303,502,967 including non-controlling interest of Euro 216,755 and a net profit of Euro 210,588,080), the consolidated separate income statement, the statement of comprehensive consolidated income, the consolidated statement of changes in equity and the consolidated cash flow statement for the year then ended and the corresponding notes to the accounts.

Responsibilities

2 It is the responsibility of the Company’s Board of Directors (i) to prepare the consolidated Directors’ Report and consolidated financial statements which present fairly, in all material respects, the financial position of the company and its subsidiaries, the consolidated changes in equity, the consolidated result of their operations and their consolidated cash flows; (ii) to prepare historic financial information in accordance with International Financial Reporting Standards as adopted by the EU and which is complete, true, timely, clear, objective and licit, as required by the Portuguese Securities Market Code; (iii) to adopt adequate accounting policies and criteria; (iv) to maintain appropriate systems of internal control; and (v) to disclose any relevant matters which have influenced the activity, the financial position or results of the company and its subsidiaries.

3 Our responsibility is to verify the consolidated financial information included in the documents referred to above, namely if it is complete, true, timely, clear, objective and licit, as required by the Portuguese Securities Market Code, and to issue an independent and professional report based on our audit.

Scope

4 We conducted our audit in accordance with the Standards and Technical Recommendations approved by the Institute of Statutory Auditors which require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. Accordingly, our audit included: (i) verification that the subsidiary’s financial statements have been properly examined and for the cases where such an audit was not carried out, verification,

Annual Report 2010 113

on a sample basis, of the evidence supporting the amounts and disclosures in the consolidated financial statements, and assessing the reasonableness of the estimates, based on the judgements and criteria of Management used in the preparation of the consolidated financial statements; (ii) verification of the consolidation operations, and, when applicable, the utilization of the equity method; (iii) assessing the appropriateness and consistency of the accounting principles used and their disclosure, as applicable; (iv) assessing the applicability of the going concern basis of accounting; (v) assessing the overall presentation of the consolidated financial statements; and (vi) assessing whether the consolidated financial information is complete, true, timely, clear, objective and licit.

5 Our audit also covered the verification that the information included in the consolidated Directors’ Report is in agreement with the other documents as well as the verification set forth in paragraphs 4 and 5 of Article 451 of the Companies Code.

6 We believe that our audit provides a reasonable basis for our opinion.

Opinion

7 In our opinion, the consolidated financial statements referred to above, present fairly in all material respects, the consolidated financial position of Portucel – Empresa Produtora de Pasta e Papel, S.A. as at December 31, 2010, the consolidated results of their operations and their consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the EU and the information included is complete, true, timely, clear, objective and licit.

Report on other legal requirements

8 It is also our opinion that the information included in the Directors’ Report is in agreement with the financial statements for the year and that the Corporate Governance Report includes the information required under Article 245-A of the Portuguese Securities Code.

Lisbon, March 15, 2011

PricewaterhouseCoopers & Associados - Sociedade de Revisores Oficiais de Contas, Lda. Represented by:

António Alberto Henriques Assis, R.O.C.

Annual Report 2010 114

Report and Opinion of the Audit Board

Shareholders,

1. In accordance with the law, the articles of association and the terms of our mandate, we are pleased to submit the report on our supervisory activities in 2010 and to issue our opinion on the Consolidated Management Report and Consolidated Financial Statements presented by the Board of Directors of Portucel – Empresa Produtora de Pasta e Papel, SA, for the financial year ended 31 December 2010.

2. Over the course of the year we monitored the affairs of the company and its most significant affiliates and associates, with the regularity and to the extent we deemed appropriate, through periodic meetings with the directors. We checked that the accounts were kept correctly and duly documented, and verified the effectiveness of the risks management, internal control and internal audit systems. We also monitored compliance with the law and the articles of association. We encountered no constraints in the course of our supervisory activities.

3. We met several times with the official auditor and external auditor, PricewaterhouseCoopers & Associados, SROC, Lda, monitoring its auditing activities and checking its independence. We assessed the Legal Accounts Certificate and the Audit Report, and are in agreement with the Legal Accounts Certificate presented.

4. In the course of our work we found that:

a) the Consolidated Income Statement, the Consolidated Statement of Recognized Income and Expense, the Statement of Changes in Consolidated Equity and the Consolidated Statement of Cash Flows and the corresponding Notes provide an adequate picture of the state of the company’s affairs and its profits;

b) the accounting policies and valuation criteria adopted comply with the International Financial Reporting Standards (IFRS) as adopted in the European Union and suitably assure that such criteria lead to a correct valuation of the company’s assets and profits, taking due account of the analyses and recommendations of the external auditor;

c) the Consolidated Management Report provides a sufficient description of the business affairs of the company and its affiliates included in the consolidated accounts, offering a clear account of the most significant developments during the year.

Annual Report 2010 115

d) the Corporate Governance Report includes the information required by Article 245-A of the Securities Code.

5. Accordingly, taking into consideration the information received from the Board of Directors and the company departments, and also the conclusions of the Legal Accounts Certificate and the Audit Report, we recommend that:

a) the Consolidated Management Report be approved;

b) the Consolidated Financial Statements be approved;

6. Finally, the members of the Audit Board wish to acknowledge and express their thanks for the assistance received from the Board of Directors, the senior managers of the company and other staff.

Lisbon, 15 March 2011

The Chairman of the Audit Board Duarte Nuno d’Orey da Cunha

Member Miguel Camargo de Sousa Eiró

Member Gonçalo Nuno Palha Gaio Picão Caldeira

Annual Report 2010 116

Corporate Governance Report

Chapter 0 Declaration of compliance

0.1. Location where the public may find the Corporate Governance Codes to which the issuer is subject to or those which the issuer voluntarily abides by.

The Company follows the Corporate Governance Code for Listed Corporations of the CMVM (the Portuguese Securities Market Commission), by applying CMVM Regulation no. 1/2010. The Recommendations and the Regulation can be consulted at the CMVM website at www.cmvm.pt.

0.2. Detailed description of the recommendations contained in the CMVM Corporate Governance Code, or any other code, that have or have not been adopted, in accordance with CMVM Regulation 1/2010. Recommendations not fully adopted are regarded for present purposes as not adopted.

Recommendations COMPLIANCE REMARKS

I. General Meeting I.1 Officers of the General Meeting I.1.1 The Chairman of the General Meeting shall have at his disposal the necessary and adequate human Adopted See Chapter I resources and logistic support, taking the financial Item 1.1 position of the company into consideration. I.1.2 The remuneration of the Chairman of the General Meeting shall be disclosed in the annual report on Adopted See Chapter I corporate governance. Item 1.3

I.2 Participation at the Meeting I.2.1 The deadline for submitting proof of the deposit or blocking of shares for the purposes of attending general Adopted See Chapter I meetings shall be no more than five business days prior Item 1.4 to the date of the meeting. I.2.2 In the event of the General Meeting being adjourned, the company shall not require shares to be Adopted See Chapter I blocked until the meeting is resumed, when the normal Item 1.5 requirement for the first session shall again apply.

I.3 Voting and Exercise of Voting Rights I.3.1 The articles of association shall not impose any Adopted See Chapter I restriction on postal voting or, whenever adopted or Item 1.7 admissible, on electronic voting. I.3.2 The deadline established in the articles of association for receiving postal ballots shall be no more Adopted See Chapter I than 3 business days prior to the date of the meeting. Item 1.11 I.3.3 Companies shall ensure that voting rights are proportional to shareholder’s holdings, preferably by Adopted See Chapter I

Annual Report 2010 117

enshrining the one share-one vote principle in the Item 1.6 articles of association. Companies are deemed not to comply with the requirement of proportionality when: i) they have non-voting shares; ii) have shares for which the respective voting rights are not counted if in excess of a given number, when cast by a single shareholder or related shareholders.

I.4 QUORUM FOR RESOLUTIONS I.4.1 Companies shall not set a quorum for adopting Adopted See Chapter I.8 resolutions greater than that established in law.

I.5 MINUTES AND INFORMATION ON RESOLUTIONS PASSED I.5.1 An extract from the minutes of the General See Chapter I Meetings shall be posted or their contents otherwise Adopted Items 1.13 and 1.14 made available to shareholders through the company’s website, within five days of the holding of the general meeting, irrespective of whether constituting privileged information. The information disclosed shall include the resolutions adopted, the share capital represented and the results of votes. This information shall be kept on the company’s website for no less than three years.

I.6 MEASURES ON CORPORATE CONTROL I.6.1 Measures aimed at preventing successful takeover bids, shall respect both the company’s and the Adopted See Chapter I shareholders’ interests. Item 1.19 When, in keeping with this principle, the articles of association of a company set a limit on the number of votes which may be held or exercised by a single shareholder, individually or in conjunction with other shareholders, they shall also provide that, no less than every five years, a motion for maintaining or altering this provision shall be put before the general meeting (without requiring a quorum greater than that provided for in law) and that all votes cast in relation to such resolution shall be counted, without operation of the restriction in question. I.6.2 In cases such as change of control or changes to the composition of the Board of Directors, defensive Adopted See Chapter I measures shall not be adopted that instigate immediate Item 1.20 and serious erosion of the company’s assets, thereby disrupting the free transferability of shares and free assessment of the performance of the Board of Directors by the shareholders. II. MANAGEMENT AND AUDIT BOARD II.1. GENERAL ISSUES II.1.1. STRUCTURE AND DUTIES II.1.1.1 The Board of Directors shall assess the model adopted in its annual corporate governance report and Adopted See Chapter II identify any constraints on its functioning and shall Item 2.3 propose measures that it considers appropriate for overcoming such constraints. II.1.1.2 Companies shall set up internal risk control and management systems in order to safeguard their value Adopted See Chapter II and for the sake of transparency in their corporate Item 2.5 governance, allowing it to identify and manage risk. These systems shall include at least the following

Annual Report 2010 118

components: i) setting of strategic company objectives with regard to risk acceptance; ii) identification of the main risks associated with the specific business carried on and of the events which may give rise to risks; iii) analysis and measurement of the impact and probability of the occurrence of each of the potential risks; iv) risk management with a view to aligning the risks effectively incurred with the company’s strategic options regarding risk assessment; v) procedures for monitoring execution of risk management measures adopted and their effectiveness; vi) adoption of internal reporting and information procedures relating to the different components of the system and risk alerts; vii) periodic assessment of the system implemented and adoption of changes as required. II.1.1.3 The Board of Directors shall ensure that internal Adopted See Chapter II control and risk management systems are set up and Item 2.5 function. The Supervisory Board shall be responsible for assessing the functioning of these systems and proposing any changes required to adjust them to the company’s needs. II.1.1.4 In their annual corporate governance reports, Adopted See Chapter II companies shall: i) identify the main economic, financial Item 2.9 and legal risks to which the company is exposed in carrying on its business; ii) describe the activities and effectiveness of the risk management system. II.1.1.5 The Management and Audit Boards shall establish internal regulations which shall be disclosed Not adopted See Chapter 0.4 on its website.

II.1.2 INCOMPATIBILITY AND INDEPENDENCE II.1.2.1 The Board of Directors shall include a number of See Chapter II non-executive members that assures effective capacity Adopted Item 2.1 to oversee, audit and assess the activities of the executive members. II.1.2.2 Non-executive members shall include an adequate number of independent members. The size of Not adopted See Chapter 0.4 the company and its shareholder structure shall be taken into account when setting this number, which shall never be less than a quarter of the total number of directors. II.1.2.3 The assessment by the board of directors of the independence of its members shall take into account the legal and regulatory rules in force concerning Adopted See Chapter II independence requirements and the rules on Items 2.14 e 2.15 incompatibility applicable to members of other company bodies, so that independence criteria are applied systematically and coherently across the entire company, including over time. A director shall not be deemed independent if, on any other corporate board of body, he or she would not qualify as independent under the applicable rules.

II.1.3 ELIGIBILITY AND APPOINTMENT II.1.3.1 Depending on the applicable model, the Chairman of the Audit Board, the Audit Committee or Adopted Chapter II the Financial Affairs Committees shall be independent Item 2.21 and be adequately capable of performing his duties. II.1.3.2 The selection process for applicants for non-

Annual Report 2010 119

executive directorships shall be designed so as to Adopted Chapter II prevent interference from executive directors. Item 2.16 II.1.4 POLICY ON WHISTLEBLOWING II.1.4.1 The company shall adopt a policy whereby alleged irregularities occurring within the company are Adopted Chapter II reported, specifying: i) the means through which such Item 2.35 irregularities may be reported internally, including the persons that are entitled to receive the reports; ii) how the report is to be handled, including confidential treatment, should it be required by the reporter. II.1.4.2 The general guidelines on this policy shall be disclosed in the corporate governance report. Adopted Chapter II Item 2.35

II.1.5 REMUNERATION II.1.5.1 The remuneration of the members of the Board of Directors shall be structured so as to align their Not adopted This recommendation is only not interests with the long term interests of the company, applied with regard to the 2nd part of shall be based on performance assessments and sub-paragraph ii) and the 1st part of discourage excessive risk taking. To this end, sub-paragraph iii); sub-paragraphs remuneration shall be structured, namely, as follows: v) and vi) are not applicable.

i) the remuneration of directors with executive See Chapter 0.4 duties shall include a variable component, set in accordance with the performance assessment, conducted by the competent company bodies, in accordance with measurable and pre-set criteria, which consider the real growth of the company and the wealth effectively created for shareholders, its long term sustainability and the risks accepted, and also compliance with the rules applicable to the company’s business operations. ii) The variable component of remuneration shall be reasonable overall in relation to the fixed remuneration component, and upper limits shall be set for all components; iii) A significant part of the variable remuneration shall be deferred for a period of no less than three years, and payment of such part shall depend on the continued positive performance of the company over this period. iv) Members of the board of directors shall not enter into contracts either with the company or with third parties which have the effect of mitigating the risk inherent in the variability of their remuneration as fixed by the company. v) Until the end of their term of office, executive directors shall maintain the shares in the company which they may have received under variable pay schemes, up to a limit of twice the value of their total annual remuneration, save those which have to be disposed of in order to pay taxes resulting from the earnings of these shares. vi) When the variable remuneration includes the allocation of options, the start of the period for exercise shall be deferred for a period of no

Annual Report 2010 120

less than three years. vii) Appropriate legal instruments shall be instituted so that the severance pay established for any form of dismissal without due cause or termination of directorship is not paid if the dismissal or termination by agreement is due to failings in the director’s performance. viii) The remuneration of non-executive directors shall not include any component dependent on their performance or the value of the company. II.1.5.2 The statement on remuneration policy for Adopted See Chapter II members of the board of directors and audit board Item 2.30 referred to in Article 2 of Law 28/2009, of 19 July, shall contain, in addition to the content referred to therein, sufficient information: i) on which corporate groups were selected for comparison of remuneration policy and practices for the purposes of setting remuneration; ii) on severance payments for directors. II.1.5.3 The remuneration policy statement referred to in Article 2 of Law 28/2009 should also encompass the Not adopted See Chapter 0.4 remuneration of management personnel, as defined in Article 248-B.3 of the Securities Code, whose remuneration includes a significant variable component. The statement should be detailed and the policy presented should take into account the company’s long term performance, compliance with the rules applicable to the company’s operations and restraint in risk-taking. II.1.5.4 A proposal shall be submitted at the General Meeting on the approval of plans for the allotment of Not applicable shares and/or share options or options based on variations in share prices, to members of the Management and Audit Boards and other management personnel as defined in Article 248/3/B of the Securities Code. The proposal shall mention all the necessary information for a correct assessment of any such plan. The proposal shall contain the plan regulations or, if these have not yet been drawn up, the general conditions to which the plan is subject. The main features of the retirement benefit plans for members of the Management and Audit Boards and other management personnel, as defined in Article 248/3/B of the Securities Code, shall also be approved at the General Meeting. II.1.5.6 No less than one representative of the Remuneration Committee shall be present at the Annual Adopted See Chapter I Shareholders’ General Meeting. Item 1.15 II.1.5.7 The annual report shall disclose, in aggregate and individual terms, the remuneration received in other Adopted See Chapter II group companies and pensions rights acquired through Item 2.31 such office.

II.2. BOARD OF DIRECTORS II.2.1 Within the limits established by Law for each Management and Supervisory structure, and except on Adopted See Chapter II the grounds of the small size of the company, the Board Item 2.3 of Directors shall delegate the day-to-day running of the company and the delegated responsibilities shall be identified in the Annual Report on Corporate

Annual Report 2010 121

Governance. II.2.2 The Board of Directors shall ensure that the company acts in accordance with its objects, and shall Adopted See Chapter II not delegate its responsibilities with regard to: i) Item 2.3 definition of the company’s strategy and general policies; ii) definition of the corporate structure of the group; iii) decisions that should be considered as strategic due to the amounts, risk and particular characteristics involved. II.2.3 If Chairman of the Board of Directors exercises executive duties, the Board of Directors shall set up Not applicable efficient procedures for coordinating non-executive members that assure that these may reach decisions in an independent and informed manner, and furthermore shall provide shareholders with details of these procedures in the corporate governance report. II.2.4 The annual management report shall include a description of the work of non-executive Board Adopted See Chapter II Members and shall mention any constraints Item 2.3 encountered. and Annex II II.2.5. The company shall specify its policy on rotating areas of responsibility within the board of directors, and in particular responsibility for financial matters, providing information on this in its annual corporate governance Adopted See Chapter II report. Item 2.11

II.3 CHIEF EXECUTIVE OFFICER (CEO), EXECUTIVE COMMITTEE AND EXECUTIVE BOARD OF DIRECTORS II.3.1 Directors who exercise executive duties, when requested by other Board Members to supply Adopted See Chapter II information, shall do so in good time and the information Item 2.3 supplied shall adequately respond to the enquiry. II.3.2 The Chairman of the Executive Committee shall send notices and minutes of meetings to the Chairman Adopted See Chapter II of the Board of the Directors and, when applicable, to Item 2.3 the Chairman of the Audit Board or the Auditing Committee. II.3.3 The Chairman of the Executive Board of Directors shall send the notices and minutes of meetings to the Not applicable Chairman of the General and Audit Board and to the Chairman of the Financial Affairs Committee.

II.4. GENERAL AND AUDIT BOARD, FINANCIAL AFFAIRS COMMITTEE, AUDIT COMMITTEE AND AUDIT BOARD II.4.1 In addition to its supervisory duties, the General and Audit Board shall advise, monitor and assess, on an Not applicable ongoing basis, the management of the company by the Executive Board of Directors. In addition to other matters, the General and Audit Board shall pronounce on: i) definition of the strategy and general policies of the company; ii) the corporate structure of the group; and iii) decisions which should be considered strategic due to the amounts, risk and particular characteristics involved. II.4.2 The annual reports and financial information on the work of the General and Supervisory Committee, the Adopted See Chapter II Financial Affairs Committee, the Audit Committee and Item 2.23

Annual Report 2010 122

the Audit Board shall be disclosed on the company’s and website together with the financial statements. Annex III II.4.3 The annual reports on the work of the General and Audit Board, the Financial Affairs Committee, the Audit Adopted See Annex III Committee and the Audit Board shall include a description of their supervisory activity and shall mention any constraints encountered. II.4.4 The General Supervisory Board, the Audit Committee and the Audit Board (depending on the Not adopted See Chapter II applicable model) shall represent the company for all Section III purposes in dealings with the external auditor, and shall Item 2.24 propose the provider of these services and the respective remuneration, ensure that adequate conditions for the supply of these services are in place within the company, as well as providing the point of contact at the company and receiving the respective reports. II.4.5 Depending on the applicable model, the Audit Committee and the Audit Board shall assess the Adopted See Annex III external auditor annually and propose his dismissal to the General Meeting whenever there is due cause. II.4.6 The internal audit departments and those that ensure compliance with the rules applicable to the Not adopted See Chapter 0.4 company (compliance services) shall report to the Audit Committee, the General and Supervisory Board or in the case of companies adopting the Latin model, an independent director or Supervisory Board, regardless of the hierarchical relationship that these services have with the executive management of the company. II.5. SPECIAL COMMITTEES II.5.1 Except in small companies and depending on the model adopted, the Board of Directors and the General Adopted See Chapter II and Supervisory Committees shall set up the necessary Item 2.30 Committees in order to: i) assure competent and independent assessment of the performance of the Executive Directors, as well as of their own overall performance and also that of all existing Committees; ii) reflect on the governance system in place and monitor its effectiveness and propose to the relevant bodies the measures required to improve it; III) identify promptly potential candidates with the high profile needed to hold the office of director. II.5.2 Members of the Remuneration Committee or the equivalent shall be independent of the Members of the Adopted See Chapter II Board of Directors and include no less than one Item 2.30 member with knowledge and experience in the field of Annex IV remuneration policy. II.5.3 No natural or legal person who provides, or has provided in the last three years, services to any body or Adopted See Chapter II organization reporting to the board of directors or to the Item 2.30 company’s board of directors itself, or who has any Annex IV current relationship with the company’s consultants, shall be contracted to support the Remuneration Committee in the performance of its duties. This recommendation also applies to any natural or legal person connected with such persons by employment or service contract. II.5.4 All Committees shall draw up minutes of the Adopted See Chapter II meetings held. Item 2.30

Annual Report 2010 123

III. REPORTING AND AUDITING III.1 GENERAL REPORTING DUTIES III.1.1 Companies shall maintain permanent contact with the market, thereby upholding the principle of equality Adopted See Chapter III for shareholders and preventing any inequality in access Item 3.15 to information for investors. To this end, the company shall have an investor support office. III.1.2 The following information published on the company’s website shall be disclosed in the English language: 1. The company name, public company status, registered office and other data required by Adopted Article 171 of the Companies Code; 2. Articles of association; Adopted 3. Identity of company officers and market Adopted relations officer; 4. Investor support office, respective services and contact details; Adopted 5. Financial statements and reports; Adopted 6. Six-monthly schedule of company events; Adopted 7. Motions to be tabled at the General Meeting; Not adopted See Chapter 0.4 8. Notices of general meetings. Adopted III.1.3 Companies shall change to a new auditor after two or three terms of office, depending on whether such Adopted See Chapter II terms are respectively of three or four years. Section III Reappointment after such period has elapsed shall be Item 2.24 on the basis of grounds set out in a specific report from the supervisory board, expressly assessing the auditor’s independence and the advantages and costs of substitution III.1.4. In the exercise of its duties, the external auditor shall check the application of remuneration policies and Adopted See Chapter III systems, the effectiveness and workings of internal Item III.13 control procedures and report any shortcomings to the company’s supervisory board. III.1.5. The company shall not contract from the external auditor, or from any entities belonging to the same Adopted See Chapter III corporate group or network, any services other than Item III.13 audit services. If there are reasons for contracting such services, which shall be approved by the supervisory board and detailed in its annual corporate governance report, they shall not account for more than 30% of the total value of the services supplied to the company.

IV. CONFLICTS OF INTERESTS IV.1. DEALINGS WITH SHAREHOLDERS IV.1. Transactions between the company and the owners of qualifying holding, or with entities in any way Adopted See Chapter III related to such shareholders, as defined in Article 20 of Item III.13 the Securities Code, shall be carried out on an arm’s length basis. IV.1.2. Significant transactions with the owners of qualifying holdings, or with entities in any way related to Adopted See Chapter III such shareholders, as defined in Article 20 of the Item III.13 Securities Code, shall be submitted for prior clearance by the supervisory board. This body shall determine the procedures and criteria needed for assessing whether such transactions are significant and for deciding on any steps to be taken.

Annual Report 2010 124

0.3. Notwithstanding the foregoing, the company may also make an overall assessment, provided due grounds are stated, of the degree of adoption of groups of thematically related recommendations

In its overall assessment of the degree of adoption of the recommendations, the Company has established that this degree is fairly high, whilst still acknowledging that a number of differences exist, as detailed in the relevant chapters.

In relation to the recommendations applicable to the constitution and workings of the General Meeting, the Company has adopted the recommendations in full.

With regard to the recommendations applicable to the management and supervisory bodies, the Company has not adopted six recommendations, although two of these (composition of the Board of Directors and the policy on directors’ remuneration) are matters for which sole powers lie with the shareholders or the Remuneration Committee, which is elected directly by the General Meeting. The reason for non-adoption of the recommendation on the statement of remuneration policy for management personnel has to do with natural commercial concerns and others relating to competition. In relation to the recommendation on representation of the Company in dealings with the External Auditor, although the letter of the recommendation has not been adopted, the Company is satisfied that it has fully complied with its underlying spirit. The other instances of non- adoption – the recommendations on disclosing regulations on the website and the reporting of internal audit departments to the Audit Board – might be overcome in the next financial year, as the 2011 Ordinary General Meeting will elect new company officers, and the new Board of Directors may decide to adopt these recommendations.

Finally, with regard to general duties of information, the Company only failed to adopt with the recommendation on the presentation of motions to the General Meeting in English, due merely to the fact that the individual and consolidated reports and accounts were not available early enough to arrange for their translation prior to the date of the General Meeting.

The degree of adoption of the 54 recommendations may be regarded as fairly high, given that at this moment only 7 are not adopted, of which 3 will foreseeably be complied with in the course of 2011. The Company is therefore able to record significant progress in the degree of adoption of the CMVM recommendations over recent periods.

0.4. When the structure or the corporate governance practices deviate from the CMVM’s Recommendations or from other Corporate Governance Codes to which the company is subject or which it has voluntarily applied, the company shall explain which parts of each code have not been complied with and the reasons for this.

Annual Report 2010 125

II.1.1.5 The Management and Audit Boards shall establish internal regulations which shall be disclosed on its website.

Both the boards referred to in this recommendation have internal regulations, although these are not published on the company’s website. The reason for this is that they are regulations which go beyond the mere procedures of the bodies in question and some of their content is therefore of a reserved nature; accordingly they should not be displayed in a place where they may be accessed not only by shareholders but also by any other persons who might wish to consult such documents. However, as the company officers are due for election at the next General Meeting, the decision not to publish these regulations on the Company’s website may be reconsidered, and the recommendation may accordingly be adopted.

II.1.2.2 Non-executive members shall include an adequate number of independent members. The size of the company and its shareholder structure shall be taken into account when setting this number, which shall never be less than a quarter of the total number of directors.

In accordance with the independence criterion defined in Article 414.5 of the Companies Code, the non- executive members of the Portucel’s Board of Directors cannot be considered independent. The Board of Directors was elected at the general meeting of shareholders of 14/03/2007, for a term of office which only ended on 31/12/2010. Accordingly, as this is a sovereign decision by the shareholders, only they may alter the composition of the board if they so choose. However, it is our view that the legal criteria are purely formal, and that the experience, track record and proven abilities of the Company’s non-executive directors has permitted them to perform their duties with complete independence.

II.1.5.1 The remuneration of the members of the Board of Directors shall be structured so as to align their interests with the long term interests of the company, shall be based on performance assessments and discourage excessive risk taking. To this end, remuneration shall be structured, namely, as follows:

i) the remuneration of directors with executive duties shall include a variable component, set in accordance with the performance assessment, conducted by the competent company bodies, in accordance with measurable and pre-set criteria, which consider the real growth of the company and the wealth effectively created for shareholders, its long term sustainability and the risks accepted, and also compliance with the rules applicable to the company’s business operations. ii) The variable component of remuneration shall be reasonable overall in relation to the fixed remuneration component, and upper limits shall be set for all components; iii) A significant part of the variable remuneration shall be deferred for a period of no less than three years, and payment of such part shall depend on the continued positive performance of the company over this period.

Annual Report 2010 126

iv) Members of the board of directors shall not enter into contracts either with the company or with third parties which have the effect of mitigating the risk inherent in the variability of their remuneration as fixed by the company. v) Until the end of their term of office, executive directors shall maintain the shares in the company which they may have received under variable pay schemes, up to a limit of twice the value of their total annual remuneration, save those which have to be disposed of in order to pay taxes resulting from the earnings of these shares. vi) When the variable remuneration includes the allocation of options, the start of the period for exercise shall be deferred for a period of no less than three years. vii) Appropriate legal instruments shall be instituted so that the severance pay established for any form of dismissal without due cause or termination of directorship is not paid if the dismissal or termination by agreement is due to failings in the director’s performance. viii) The remuneration of non-executive directors shall not include any component dependent on their performance or the value of the company.

The Remuneration Committee is the body responsible for defining the criteria for directors’ pay and which each year submits for the shareholders’ approval, at the general meeting, the criteria for setting this remuneration, which may not necessarily coincide with the limits and procedures described in the items above.

Of the eight sub-paragraphs in this recommendation, the Company fails only to comply with the 2nd part of sub- paragraph ii) and the 1st part of sub-paragraph iii), given that sub-paragraphs v) and vi) are not applicable.

In relation to sub-paragraph ii), it is our view that the criterion embodied by the word “reasonable” is subjective and difficult to define; however, from the Company’s perspective, the remuneration paid is entirely reasonable in view of the directors’ performance and the results achieved. Although the Company’s articles of association set no cap on remuneration, this is not to say that the Remuneration Committee does not carry out an extremely strict appraisal when setting the specific value of remuneration.

On the question of deferral of a significant portion of the variable remuneration, the Company considers that given the stability of both the shareholder structure and the board of directors, it makes sense not to apply this recommendation in the Company’s current circumstances given that it would not be possible to make opportunistic use of the directors’ performance in the light of the profits for the period, as may be seen from the profits recovered over recent years and the evolution of the directors’ pay.

With regard to sub-paragraph viii), we consider that, although the non-executive directors receive variable remuneration, the Company still complies with this fact given that this variable remuneration is completely unconnected to the Company’s performance, and is instead directly tied to responsibilities exercised and contributions on matters regarded as relating to strategic development for the Company and its associated group.

Annual Report 2010 127

II.1.5.3 The remuneration policy statement referred to in Article 2 of Law 28/2009 should also encompass the remuneration of management personnel, as defined in Article 248-B.3 of the Securities Code, whose remuneration includes a significant variable component. The statement should be detailed and the policy presented should take into account the company’s long term performance, compliance with the rules applicable to the company’s operations and restraint in risk-taking.

The remuneration policy statement drawn up by the Remuneration Committee does not include the remuneration of management personnel, as defined in Article 248-B.3 of the Securities Code, as this is a matter not assessed by the General Meeting, insofar as it is understood to be a matter on which the directors have sole powers, and in view of the negligible amounts involved in relation to the company’s total assets.

It should also be remembered that that the Company faces fierce competition at home and abroad, which causes it to have understandable reservations about disclosing remuneration or the remuneration policies for management personnel.

II.4.4I - The General Supervisory Board, the Audit Committee and the Audit Board (depending on the applicable model) shall represent the company for all purposes in dealings with the external auditor, and shall propose the provider of these services and the respective remuneration, ensure that adequate conditions for the supply of these services are in place within the company, as well as providing the point of contact at the company and receiving the respective reports.

The letter of this recommendation has not been adopted but the company complies with its spirit.

The company considers in the first place that the recommendation should not be interpreted as meaning that formal powers to represent the company in this regard should be granted to the audit board, by powers of attorney or other equivalent instruments.

The Audit Board has effectively a prime point of contact with the External Auditor, and its reports are generally received and discussed at joint meetings with the Audit Board and a member of the Board of Directors; the Audit Board assures that proper arrangements have been made within the company for the audit services to be conducted correctly.

But the letter of the recommendation goes further, asserting that the Audit Board should be “the” point of contact between the company and the external auditor, and also requiring that instead of the report being received simultaneously it should instead be submitted in the first place to the Audit Board. This appears excessive. The company takes the sufficient steps to assure there are no barriers or filters between the external auditor and the Audit Board which would deny the Audit Board direct knowledge of the auditor’s work; the Board of Directors takes the necessary steps to assure the reports are submitted simultaneously to the Audit Board and itself, but it cannot in all conscience deny itself knowledge of the findings of the external auditors, or delay the moment when

Annual Report 2010 128

it learns of such findings. Ultimate responsibility for the company’s affairs and its financial statements lies with the Board of Directors.

As regards the contracting of the external auditor, the Audit Board proposes the auditor under the terms of Article 420.2 b) of the Companies Code and is party to the process of fixing the respective remuneration and the remuneration for the additional services it provides. It should be noted that the External Auditor is the company’s Official Auditor and has been elected by the shareholders for a term of office identical to that of the Audit Board.

This means that in years when the general meeting elects officers, the company may be faced with the procedural difficulty relating essentially to the fact that the proposal refers to a term of office for which the actual members of the audit board do not know if they will remain in office, as this depends on a decision of the shareholders, which will be taken at the same time as it elects the official auditor. It should be noted that, in view of the need to rotate the members of the Audit Board (Article 414.5 b) of the Companies Code), they may find themselves proposing an auditor for a period when they themselves will not be following through his activities.

In other words, as stated above, the concerns which prompted this recommendation have been taken into due account by Portucel, but the literal text of the recommendation has not been adopted.

II.4.6 The internal audit departments and those that ensure compliance with the rules applicable to the company (compliance services) shall report to the Audit Committee, the General and Supervisory Board or in the case of companies adopting the Latin model, an independent director or Supervisory Board, regardless of the hierarchical relationship that these services have with the executive management of the company.

As may be seen in the organizational chart contained in chapter II of this Report, the internal audit services report directly to the Executive Board. However, irrespective of this direct relationship, the internal audit service meets directly with the Audit Board when requested, providing all information which the Audit Board deems relevant and performing the work required by this board; this recommendation is therefore understood, in practically terms, to be adopted.

III.1.2 The following information published on the company’s website shall be disclosed in the English language: a) The company name, public company status, registered office and other data required by Article 171 of the Companies Code; b) Articles of association; c) Identity of company officers and market relations officer; d) Investor support office, respective services and contact details; e) Financial statements and reports;

Annual Report 2010 129

f) Six-monthly schedule of company events; g) Motions to be tabled at the General Meeting; h) Notices of general meetings.

This recommendation was not adopted only in respect of the specific requirement under g) that the English- language version of the motion on approval of the Report and Accounts be posted on the Company’s website by the deadline indicated in the Securities Code. This was a merely circumstantial issue, which will be taken into account and corrected this year.

Annual Report 2010 130

Chapter I

General Meeting

1.1. Identification of the officers of the General Meeting:

The Chairman of the General Meeting is José Pedro Aguiar Branco, and the secretary is. Rita Maria Pinheiro Ferreira.

The company provides the chairman of the general meeting with the human and logistical resources required, through the supporting services of the Company Secretary and the Legal Office, this support is deemed appropriate in view of the size and state of the company’s affairs.

The Investor Support Office also provides support with regard to the general meeting, replying to enquiries from shareholders and organizing accreditation for participation in the meetings, liaising with the Company Secretary and the officers of the General Meeting.

1.2. Starting and ending dates of terms of office:

The officers of the General Meeting were elected for a term of office starting on 01/01/2007 and ending on 31/12/2010.

1.3. Remuneration of the chairman of the General Meeting.

During 2010, the remuneration earned by the Chairman of the General Meeting was 7.000€.

1.4. Time during which shares must be blocked in order for their holders to participate in the general meeting.

The articles of association require shareholders to present to the company documentary evidence of ownership of shares no less than five days prior to the date of the meeting, as required by Article 23-C.1 of the Securities Code.

1.5. Rules applicable to the blocking of shares in the event of adjournment of the General Meeting.

Annual Report 2010 131

In the event of the meeting being adjourned, the Company need not require shares to be frozen until the meeting is resumed, the normal rule for the first session again applying, in other words, shareholders are required to provide evidence of ownership fo shares by the fifth day prior to the resumption of the meeting.

1.6. Number of shares that correspond to one vote.

One vote corresponds to each 1,000 shares in the company.

The Company considers that the principle of proportionality between voting rights and shareholder investment is respected. Voting rights are in fact dependent on the holding of a minimum number of shares, in a Company where the Articles of Association do not provide for a cap on the number of votes counted from each shareholder and in which there are no non-voting shares.

1.7. Existence of provision in the articles of association for non-voting shares or rules establishing that votes in excess of a given number are not counted, when cast by a single shareholder or related shareholders.

There are no provisions to this effect in the Articles of Association.

1.8. The existence of rules in the articles of association on the exercise of voting rights, including quorums for holding meetings or adopting resolutions or systems for equity rights.

The Company’s Articles of Association contain no specific rules on a quorum for adoption of resolutions by the General meeting, meaning that the legal rules established in the Companies Code apply in full. Recommendation I.4.1 is therefore adopted.

1.9. Existence of rules in the articles of association on postal votes.

There are no rules in the articles of association on the casting of postal votes, and the procedures for exercising this right are explained in the notice of the General Meeting.

Accordingly, shareholders who wish to cast postal votes are required to send a letter to the Chairman of the General meeting, at the company’s registered offices, containing a closed envelope for each item on the order of business on which they wish to vote, indicating on each envelope that it contains a postal vote, and specifying

Annual Report 2010 132

the General Meeting and the item on the order of business to which ti refers; inside each envelope, the shareholder is required to declare his vote, namely by taking a position in relation to any motions submitted in advance to the General Meeting; each voting declaration must be signed, and the signature notarized or authenticated by legal means deemed to be equivalent.

Postal votes are only considered if the shareholders casting them provide evidence of the ownership of their shares, in accordance with the general rules.

Postal votes are only considered when received by the day prior to the holding of the meeting, inclusive

1.10. Provision of postal voting forms.

The company provides postal voting forms. These forms are available on the company’s website and may be requested from the investor support office.

1.11. Time limit for receipt of postal ballots prior to the date of General Meetings.

Postal ballots will be received up to the day prior to the date of the General Meeting.

1.12. Exercise of voting rights by electronic means.

Exercise of voting rights by electronic means is still not possible. We wish to note that the company has yet to receive any enquiry or expression of interest from shareholders or investors in relation to such a facility.

1.13. Shareholder access to extracts from minutes of general meetings through company website within five days of the holding of the meeting

Extracts from the minutes of General Meetigns are posted on the Company’s website, www.portucelsoporcel.com in the investor relations area, within five days of the holding of the General Meeting.

1.14. Existence of historical archives, on the company’s website, with resolutions adopted at the company’s general meetings, the share capital represented and the results of votes, for the last three years.

Annual Report 2010 133

In addition to the minutes of General Meetings, the Company’s website also provides shareholders with information on the list of attendees at meetings, the order of business and resolutions adopted, in respect of all general meetings held in the last three years.

1.15. Information on presence at general meetings of representative(s) of the remuneration committee.

The presentce of the members of the Remuneration Committee is always required at General meetings. The minutes of General Meetings always indicate how the committee was represented, and in the last three years it was represented by Frederico José da Cunha Mendonça e Meneses at the General Meetings of 17 December 2010 and 15 March 2010, by José Gonçalo Maury, João Rodrigo Appleton Moreira Rato and Frederico José da Cunha Mendonça e Meneses at the General Meetings of 6 March 2009 and 13 March 2008.

1.16. Information on the intervention by the General Meeting on matters concerning the remuneration policy of the company and assessment of the performance of members of the Board of Directors.

The remuneration policy for company officers is the responsibility of the Remuneration Committee, which submits its proposals for the approval of the General Meeting, which is attended by at least one member of the Remuneration Committee. The remuneration policy submitted to the General Meeting in 2011 is set out in Annex IV to this report.

1.17. Information on the general meeting’s intervention concerning proposals for share- or option-based payment schemes or payment schemes based on variations in share prices for members of the board of directors, audit board or other management personnel, as defined in Article 258-B.3 of the Securities Code, and on the documents made available to the general meeting for a correct assessment of these schemes.

There are no share or share option schemes in place, and accordingly this matter is not subject to intervention by the General Meeting.

1.18. Information on the general meeting’s intervention in approving the central features of the retirement benefits system for members of the board of directors, audit board or other management personnel, as defined in Article 258-B.3 of the Securities Code

The General Meeting has not to day been involved in approving the main features of retirement pension schemes for members of the Board of Directors and Audit Board and other management personnel.

Annual Report 2010 134

1.19. Existence of provision in the Articles of Association requiring the general meeting to resolve, no less than every five years, on whether to maintain or eliminate a rule in the articles limiting the number of votes which can be held or cast by a single shareholder individually or in conjunction with other shareholders.

The Company’s Articles of Association contain no provision to this effect.

1.20. Defensive measures designed to cause automatic and serious erosion in the company’s assets in the event of a change of control or alterations to membership of the management body.

The company has no defensive measures which automatically cause serious erosion in the company’s assets in the event of a change of control or alterations to membership of the management body.

1.21. Significant agreements to which the company is party and which take effect, are amended or terminate in the event of a change in the control of the company, together with the respective effects, unless, due to its nature, disclosure of such agreements would be seriously detrimental to the company, except if the company is specifically required to disclose such information by other mandatory provision of law.

Some of the Company’s borrowing provides for early repayment in the event of a change of control in the shareholders structure. Clauses of this type are included in 51% of the Company’s borrowing. However, the Company considers that the contracts in question should not be disclosed as this would be prejudicial to its interests and offer not advantage to shareholders.

1.22. Agreements between the company and directors or managers, as defined by Article 248-B.3 of the Securities Code, which provide for compensation in the event of resignation, dismissal without due cause or termination of employment contract as a result of a change of control of the company.

There are no agreements between the company and directors or managers, as defined by Article 248-B.3 of the Securities Code, which provide for compensation in the event of resignation, dismissal without due cause or termination of employment contract as a result of a change of control of the company.

Annual Report 2010 135

Chapter II

Management and Supervisory Bodies

Section I – General Issues

Model Adopted by Company

The Company’s Articles of Association provide for a single-tier management model, with a Board of Directors comprising executive and non-executive members and an Audit Board, in accordance with Article 278.1 a) of the Companies Code.

2.1. Company bodies and respective membership.

Audit Board:

Chairman: Duarte Nuno d’Orey da Cunha

Full members: Miguel Camargo de Sousa Eiró Gonçalo Nuno Palha Gaio Picão Caldeira

Alternate member: Marta Isabel Guardalino da Silva Penetra

Board of Directors:

Chairman: Pedro Mendonça de Queiroz Pereira

Directors: José Alfredo de Almeida Honório Manuel Soares Ferreira Regalado Adriano Augusto da Silva Silveira António José Pereira Redondo José Fernando Morais Carreira de Araújo Luís Alberto Caldeira Deslandes Manuel Maria Pimenta Gil Mata Francisco José Melo e Castro Guedes

Annual Report 2010 136

Executive Board:

Chairman: José Alfredo de Almeida Honório

Directors: Manuel Soares Ferreira Regalado Adriano Augusto da Silva Silveira António José Pereira Redondo José Fernando Morais Carreira de Araújo

Company Secretary:

António Alexandre de Almeida e Noronha da Cunha Reis

2.2. Other committees with management or supervisory powers in the company, and respective membership.

Remuneration committee:

Chairman: José Gonçalo Maury, representing Egon Zehnder

Members: João Rodrigo Appleton Moreira Rato Frederico José da Cunha Mendonça e Meneses

Corporate governance committee

Chairman: Luís Alberto Caldeira Deslandes

Members: José Fernando Morais Carreira de Araújo António Alexandre de Almeida e Noronha da Cunha Reis

Audit committee

Chairman: Francisco José Melo e Castro Guedes Members: José Miguel Gens Paredes Jaime Alberto Marques Sennfelt Fernandes Falcão

Annual Report 2010 137

Internal control committee

Chairman: Francisco José Melo e Castro Guedes Directors: José Miguel Gens Paredes Jaime Alberto Marques Sennfelt Fernandes Falcão

Other committees in the Company:

Sustainability committee

Chairman: Manuel Maria Pimenta Gil Mata

Members: Adriano Augusto Silveira João Manuel Alves Soares

Environmental Board

Members: Fernando Ramoa Ribeiro João Santos Pereira Casimiro Pio Rui Ganho Maria da Conceição Cunha

Pension Fund Supervisory Committee

Members: João António Xavier da Costa Ventura Manuel Luís Daun e Lorena Arouca António Alexandre de Almeida e Noronha da Cunha Reis Jorge do Carmo Guilherme Tareco Carlos Alberto Martins de Barros

Annual Report 2010 138

Pension Fund Supervisory Committee

Members: Manuel Soares Ferreira Regalado Adriano Augusto da Silva Silveira Carlos Alberto Amaral Vieira Carlos Manuel Marques Brás José Manuel Namorado Nordeste Óscar Manuel Monteiro da Silva Arantes Jerónimo Paulo Alves Ferreira Manuel Luís Daun e Lorena Arouca

Ethics Committee

Chairman Júlio de Lemos de Castro Caldas Members Paulo Miguel Garcês Ventura Rita Maria Lago do Amaral Cabral.

Annual Report 2010 139

2.3. Organizational charts or flow charts showing the division of responsibilities between the different company bodies, committees and/or departments, including information on scope of powers delegated, in particular concerning delegation of the day-to-day running of the company, or the distribution of special responsibilities assigned to specific directors or members of the audit board and a list of matters where powers cannot be delegated and powers effectively delegated.

Company Boards and Committees

BOARD OF DIRECTORS

Pedro Queiroz Pereira GENERAL MEETING José Honório Manuel Regalado Adriano Silveira António Redondo REMUNERATION COMMITTEE Fernando Araújo Luís Deslandes José Gonçalo Maury Manuel Gil Mata João Moreira Rato Francisco Guedes Frederico Meneses

COMPANY SECRETARY

António Cunha Reis

PENSION FUND SUPERVISORY COMMITTEE INTERNAL CONTROL COMMITTEE AUDIT COMMITTEE António Cunha Reis Francisco Guedes Francisco Guedes João Ventura ASSET RISK ANALYSIS AND José Miguel Paredes José Miguel Paredes Manuel Arouca SUPERVISION COMMITTEE Jaime Falcão Jaime Falcão Jorge Tareco ENIVRONMENTAL COMMITTEE Carlos M. de Barros Fernando Ramoa Ribeiro Adriano Silveira João Santos Pereira Carlos Vieira Casimiro Pio Carlos Brás Rui Ganho José Nordeste SUSTAINABILITY COMMITTEE CORPORATE GOVERNANCE Maria da Conceição Cunha Oscar Arantes EXECUTIVE BOARD COMMITTEE Manuel Gil Mata Jerónimo Ferreira Adriano Silveira José Honório Luís Deslandes Manuel Arouca João Manuel Soares Manuel Regalado Fernando Araújo Adriano Silveira António Cunha Reis António Redondo Fernando Araújo

Annual Report 2010 140

Company Divisions and Departments

EXECUTIVE BOARD

José Honório Manuel Regalado Adriano Silveira António Redondo Fernando Araújo

CORPORATE IMAGE AND ADVISERS TO EXECUTIVE BOARD COMMUNICATION

António Cunha Reis Ana Nery Cândido Dias Almeida João Soares Pedro Moura INVESTOR RELATIONS

Joana Lã Appleton

INTERNAL AUDIT AND RISK LEGAL OFFICE ANALYSIS Jerónimo Ferreira António Neto Alves

FOREST AREA INDUSTRIAL AREA COMMERCIAL AREA CORPORATE AREA

PRODUCTION, OPERATION AND ENGENEERING PULP FINANCIAL CERTIFICATION

João Lé Guilherme Pedroso José Tátá Anjos Manuel Arouca

SALES, LOGISTIC AND BIOMASS ENVIRONMENT PAPER PLANNING AND CONTROL

Vitor Coelho Julieta Sansana Jorge Peixoto

SALES EUROPE

GENERAL SUPPORTING SERVICES ENERGY TAX AND ACCOUNTING António Porto Monteiro

Gonçalo Veloso de Sousa José Ricardo Rodrigues Nuno Neto

SALES INTERNATIONAL INNOVATION INFORMATION SYSTEMS André Leclercq José Maria Ataíde Mário Póvoa SUPPLY CHAIN Figueira da Foz CACIA MILL HUMAN RESOURCES Eduardo Veiga José Nordeste João Ventura

SUPPLY CHAIN Setúbal FIGUEIRA DA FOZ INDUSTRIAL PURCHASING COMPLEX José Geraldes

Carlos Vieira José Freire

MARKETING

SETÚBAL INDUSTRIAL COMPLEX Hermano Mendonça

PULP MILL LOGISTICS

Óscar Arantes Gonçalo Vieira

PRODUCT PAPER MILL DEVELOPMENT AND QUALITY Carlos Brás Pedro Sarmento

ABOUT THE FUTURE Carlos Brás

Annual Report 2010 141

Management Body

Portucel has a Board of Directors comprising nine members, with one chairman and eight directors. Five of the members are executive directors and form an Executive Board, which was elected and whose powers are delegated by the Board of Directors, and the other four members are non-executive.

The following powers are delegated to the Executive Board:

a) To propose the company’s policies, aims and strategies to the Board of Directors; b) To propose to the Board of Directors operating budgets and medium and long term investment and development plans, and to implement the same once approved; c) To approve budget alterations during the year, including transfers between cost centres not exceeding twenty million euros each year; d) To approve contracts for the acquisition of goods and services of a value each year no greater than twenty million euros; e) To approve financing contracts, to apply for bank guarantees, or to accept any other liabilities which represent increased indebtedness, totalling no more than twenty million euros each year; f) To acquire, dispose of or encumber the company’s fixed assets of a value, in each individual case, of up to five per cent of the paid up share capital; g) To lease or let any immoveable property; h) To represent the company in or out of court, as claimant or respondent, and to bring or follow up any actions, confess or desist, settle or agree to arbitration; i) To acquire, dispose of or encumber holdings in other companies, of a value of no more than twenty million euros each year; j) To resolve on executing acquisition and disposal of own shares, when this has been resolved on by the General Meeting, in keeping with the terms of such resolution; k) To manage holdings in other companies, in conjunction with the Chairman of the Board of Directors, namely by designating, with the latter’s agreement, the representatives to sit on the respective company boards, and setting guidelines for the acts of these representatives; l) To entre into, amend and terminate employment contracts; m) To open, transact and close bank accounts; n) To appoint company attorneys; o) In general, all powers which may lawfully be delegated, with any limitations deriving from the provisions of the preceding paragraphs.

The Chairman of the Board of Directors has the powers assigned by law and the articles of association.

The Executive Board may discuss all matters within the sphere of competence of the Board of Directors, notwithstanding that it may only resolve on matters delegated to it. All matters dealt with by the Executive Board, even when they fall within the scope of its delegated powers, are to be reported to the non-executive directors, who have access to the respective minutes and supporting documents.

Annual Report 2010 142

In conjunction with the Chairman of the Board of Directors, the Executive Board may also resolve on the matters provided for in paragraphs c), d), e) and i) above when the respective amounts, calculated on the terms set forth therein, are in excess of twenty million euros but under fifty million.

The powers to alter any terms of contracts previously concluded and covered by the provisions of c), d), e) and i) lie with the body or bodies who would have powers to enter into them.

All decisions relating to definition of company strategy, and to the company’s general policies and the corporate structure of the group, shall be the sole province of the Board of Directors, and the Executive Board has no delegated powers to this effect.

Portucel’s articles of association do not authorize the Board of Directors to resolve on increases in share capital.

Distribution of responsibilities

Specific responsibilities are assigned as described below to the following members of the Board of Directors, all of them belonging to the Executive Board:

• José Alfredo de Almeida Honório:

- Internal Auditing

• Manuel Soares Ferreira Regalado:

- Forestry activities - Finance - Human resources, organization and secretarial services - Purchasing - Investor relations

• Adriano Augusto da Silva Silveira:

- Industrial operations, Pulp, Energy and Paper - Maintenance and Engineering - Environment, Quality and Safety - Innovation

Annual Report 2010 143

• António José Pereira Redondo:

- Pulp and paper sales - Marketing - Communication and Image - Product development

• José Fernando Morais Carreira de Araújo:

- Accounts and taxation - Management control - Legal office - Information systems

2.4. Reference to the fact that the annual reports on the activities of the General and Supervisory Board, the Committee for financial affairs, the Audit Committee and the Audit Board include a description of the supervisory activities carried on, referring to any constraints detected, and that they are published on the company’s website, in conjunction with the other reports and financial statements.

The Company bodies with powers and responsibilities in this area are the Audit Board and the Audit Committee, both of which include in their annual reports an assessment of the company’s activities during the period, mentioning, when relevant, any constraints detected, as well as any recommendations they may have for the bodies with powers of corporate management. No constraints have to date been reported.

The Management Body’s assessment of the governance model adopted

The Board of Directors considers that the corporate governance model adopted has proven appropriate for the correct internal and external running of the company. The Board of Directors has an Executive Board comprising five members who meet every week and discuss all matters relating to the management of the company; there are quarterly meetings with non-executive members and detailed information flows between non-executive and executive members of the Board on all relevant company matters.

The Board of Director is also supported by a number of specialised committees which make their contribution in their specific areas.

Annual Report 2010 144

No company officer or body has felt any constraint or drawn attention to the working of the corporate governance model, in view of the rigour and frequency with which information is reported.

2.5. Description of the internal control and risk management systems within the company, namely as regards the financial information disclosure system, the workings and effectiveness of this system.

The Company’s strategic aim in the field of risk-taking is to reduce to a minimum the possibility of occurrence of risks involved at the different levels of the company’s operations. The Company has various committees whose responsibilities include preventative action in this area: the Internal Control Committee, which has the mission of detecting and controlling relevant risks in the company’s operations, and the Asset Risks Analysis and Supervision Committee, which pronounces on the systems for preventing property risks in place in the Group.

The Internal Control Committee is responsible for identifying, assessing and monitoring risks, which are then managed and/or mitigated by various units within the company. One of the most important aspects of the work of these committees is the forecasting of the consequences of occurrence of the risks identified below, making for greater effectiveness in the adoption of measures which can be implemented immediately when these circumstances occur.

In addition to the risks involved in the actual business of producing pulp and paper, in which it is engaged, the main risks to which the group is subject are the following:

- financial; - property; - environmental; - health and safety

Measures taken in order to manage these risks, together with the internal structures responsible for this task, are described below.

Financial risk

The Group’s operations are exposed to a variety of financial risk factors: exchange rate risk, interest rate risk, credit risk and liquidity risk. The Group has a risk management programme which focuses its analysis on the financial markets, seeking to minimize potential adverse effects on the Group’s financial performance.

Annual Report 2010 145

Risk management is handled by the Financial Department, in keeping with policies approved by the Board of Directors. The Financial Department assesses financial risks and arranges hedges in close cooperation with the Group’s operating units.

The Board of Directors lays down principles for risk management as a whole and policies for specific areas, such as exchange rate risk, interest rate risk, credit risk, use of derivatives and other non-derivative financial instruments and investment of surplus liquidity.

It should be noted that the factors of financial and operating risk, together with the risk management systems in place, are detailed and quantified in no. 2 of the Notes to the Financial Statements.

Property risks

The Group’s manufacturing units are subject to the risks involved in any industrial operations, such as the risk of accident, breakdown or natural disaster, which could cause harm to their assets and interrupt the production process.

The Group manages these risks with care, on two complementary fronts:

(i) Implementation of a strict prevention plan at all industrial facilities, with a special emphasis on fire detection and automatic protection, monitoring systems, systems for protection of machinery and plant, and particularly on maintenance and the training of internal accident prevention and combat teams, backed by special material and human resources;

(ii) A comprehensive programme of property insurance, including multi-risk insurance (damage caused by external factors, including natural disasters), breakages and breakdown of machinery, and operating losses caused by these events.

In addition, the reinsurers in the insurance programme, represented by the lead reinsurer, conduct an inspection of all plant facilities, every two years, issuing a report with a set of recommendations which are adopted by the group.

As described above, the company has a Property Risk Analysis and Monitoring Committee which pronounces on the measures taken to meet the recommendations issued as a result of inspections by reinsurers.

Environmental risks

The Board of Directors has paid special attention to environmental risks, which are managed at the level of the industrial units by the respective plant management divisions and centrally by the Environmental Board, whose

Annual Report 2010 146

members are appointed by the Board of Directors and report directly to the Executive Board. These members comprise three to five individuals of recognized expertise in the field of environmental protection.

The Environmental Committee’s mission is to monitor and to issue its recommendations on environmental issues relating to the company’s operations and, whenever so requested by the Board of Directors, to give its opinion and recommendations on the environmental impact of the company’s developments, especially in the light of the legal rules in this area.

Health and Safety at Work

In the course of 2007 the Group reorganized its health and safety arrangements at its different plants, in order to comply with legal requirements and to implement a similar structure at all industrial facilities.

In keeping with the new Employment Code, Health and Safety Committees have been set up at the different plants, with responsibility for assessing potential hazards in the plants and for issuing recommendations for eliminating these risks.

During 2010, healthy and safety activities were pursued at the Group’s different industrial complexes in a regular and sustained manner, with high levels of performance and attainment of targets, resulting in good accident rate indicators at the industrial plants.

With the opening of the new paper mill in Setúbal in 2009, another major industrial facility was added to the list of premises to be controlled, and the existing safety certifications at the Setúbal site had to be extended accordingly

Sustained efforts to improve health and safety at the Setúbal, Figueira da Foz and Cacia complexes have included regular meetings of the health and safety committees. Half the members of these committees are legally elected workers’ representatives, making this a forum for permanent consultation with the workforce in this field.

Ongoing training in safety issues is provided to all employees, starting with induction training for new recruits and continuing with a full programme of specific training activities for staff at all industrial sites.

The Group has also implemented all recommendations made by experts in relation to industrial risks on the basis of the audits conducts, with a view to continuous and sustained improvement of its fire prevention and fire fighting resources.

Annual Report 2010 147

“Emergency Response Exercises” were conducted at all plants, catering for a variety of scenarios, so as to assure expertise and readiness for the Internal Emergency Plan.

Financial reporting process

In accordance with the provisions of Article 248.6 of the Securities Code, as amended by Decree-Law 52/2006, of 15 March, issuers of securities are required to draw up and keep rigorously up to date a list of their staff, with or without employment contracts, who have regular or occasional access to privileged information.

This list has been drawn up by the company, and each member of staff listed has been informed of the decision to include him or her and also of his or her legal duties and obligations, as well as the consequences of disclosure or abusive use of privileged information. Of the staff included on the list, only a small number is involved in the disclosure of privileged financial information.

All these employees and officers are also aware of the principles of professional ethics laid down in the Code or Ethics, contained in Annex I to this report, in particular with regard to duties of confidentiality and secrecy.

2.6. Responsibility of the management body and supervisory body for creating and running internal control and risk management systems in the company, and for assessing the workings of these systems and adjusting them to the company’s needs.

All the committees existing in the Company, except for the Remuneration Committee, are set up by resolution of the Board of Directors. The supervisory body is elected by the shareholders.

The Audit Board requests from the management body and the other committees in the company structure all the information it deems necessary for an adequate assessment of the Company’s internal risks, notwithstanding the flow of information normally provided on a periodic basis by the management body to the Audit Board and its joint meetings with the Board of Directors. As stated in the response to the preceding item, the company’s hierarchical structure includes bodies and systems at each industrial unit which have been implemented with a view to risk assessment.

2.7. Indication of the existence of rules of procedure for corporate bodies or any internally defined rules on incompatibility and the maximum number of positions that a member is entitled to hold and where these rules may be consulted.

Annual Report 2010 148

As stated in chapter 0, in connection with non-compliance with recommendation II.1.1.5, the company’s management and supervisory bodies have internal rules of procedure, which are not published on the company’s website and are not available for consultation. The reason for their being withheld is that these rules go beyond issues of mere procedure, and are consequently of a reserved nature.

In addition, there is no specific rule on the maximum number of positions any individual may hold.

Annual Report 2010 149

Section II – Board of Directors

2.8. If the chairman of the management body has executive powers, information on procedures for coordinating the work of non-executive members which assure that their decisions are independent and informed.

The Chairman of the Board of Directors does not have executive powers.

2.9. Identification of the main economic, financial and legal risks to which the company is exposed in the course of its business.

In the course of its business, the Group is exposed to a variety of economic, financial and legal risks, the most significant of which are detailed below:

1. Procurement of wood, and eucalyptus in particular, is subject to price variations and difficulties of supply which could have a significant impact on the production costs of pulp manufacturers;

2. Market prices of pulp and paper, which in the past have been markedly cyclical, significantly influence Portucel Group’s revenues and profitability;

3. Any reduction in demand for pulp and UWF paper, especially in EU and US markets, could have a significant impact on Group sales;

4. The Group is subject to the risk of default on the credit it grants to its customers, and has adopted a policy of hedging this risk within given levels by negotiating credit insurance from a specialist independent insurer. Sales not covered by credit insurance are subject to rules which assure they are made to customers with an appropriate credit track record;

5. Increased competition on pulp and paper markets could have a significant impact on prices and consequently on Group profitability;

6. Variations in the exchange rate between the euro and other currencies, notably the US dollar and sterling, could have an impact on Company business;

7. Variations in interest rates, and in particular in short terms rates, could have a significant impact on the Group’s results;

Annual Report 2010 150

8. There is also a liquidity risk which the Group manages in two ways. In the first place, it makes sure that its financial borrowing includes a large medium to long term component with maturities matched to the characteristics of the industry in which it operates.

In addition, the Group has contracted credit facilities from financial institutions; these are available at any time, with an upper limit which guarantees adequate liquidity.

9. In recent years, European Union legislation on environmental issues has become more restrictive, especially with regard to control of effluents.

The Portucel Group complies with all legal requirements, and has accordingly made sizeable investments in recent years. Although no significant legislative changes are foreseen in the near future, there is the possibility that the Group will have to make additional investments in this area, in order to comply with any new limits which may be approved.

10. The Portucel Group’s ability to implement successfully the strategies defined, depend upon its ability to recruit and retain the best qualified and able staff for each position. Although the Group’s human resources policy is geared to achieving this goal, it cannot preclude the possibility of future limitations in this area;

11. The Group’s industrial plants are subject to the risks involved in any industrial activity, such as the risk of accidents, breakdowns or natural disasters which could damage the Group’s assets or cause temporary stoppages to the production process. This risks could likewise affect the Group’s main customers and suppliers, which would have a significant impact on levels of profitability, if it were not possible to find alternative customers to maintain the level of sales or suppliers which allowed it to maintain the same cost structure;

12. The Portucel Group’s operations are exposed to the risks related to forest fires, in particular: (i) destruction of present and future wood stocks; and (ii) the added costs of forestry operations and subsequent preparation of land for planting;

13. Energy sales account for an important part of Group’s business, meaning that a significant change in electricity tariffs could have a significant impact on the Company’s results.

14. The listed prices of shares in Portucel could experience volatility and be subject to fluctuations due to a range of factors. By way of example, these fluctuations could be caused by: (i) changes in investor expectations regarding the prospects for the sectors and markets in which the Group operates; (ii) announcements of technological innovations; (iii) launch of new products or services by the Group or its competitors; (iv) actual or expected variations in results; (v) changes in the financial estimates of securities analysts; (vi) any significant

Annual Report 2010 151

capital expenditure projects undertaken by the Group; (vii) any strategic partnerships or joint ventures in which the Group may participate; (viii) unfavourable economic prospects; (ix) changing conditions in securities markets; and (x) poor liquidity due to the existence of a controlling shareholder with approximately 75.4% of the share capital.

Many of the risk factors identified are beyond the Portucel Group’s control, especially in the case of market factors which can have a fundamental and negative effect on the market price of the issuer’s shares, irrespective of the Group’s operational and financial performance.

2.10. Powers of the management body, in particular with regard to resolutions on increasing the share capital

The powers of the management body are those assigned by the Companies Code and those set out in Article 16, 17 and 18 of the Articles of Association.

Under the Articles of Association, the Board of Directors has no powers to resolve on increases in share capital.

2.11. Information on the policy of rotating areas of individual responsibility in the Board of Directors, and in particular responsibility for financial affairs, and on the rules applicable to the appointment and replacement of members of the management and supervisory bodies

As explained in Chapter 2.3 of this Report, dealing with the distribution of specific powers, financial affairs are overseen by two members of the Board of Directors, given that financial matters are managed separately from accounts and taxation. The existing member of the Board of Directors with special responsibility for financial affairs completed his second term of office on 31 December 2010, whilst the member responsible for accounts and fiscal matters completed his first term of office on the same date. At the next General meeting, the shareholders will elect new company officers for 2011-2013, although no policy has been defined with regard to rotating the special areas of responsibility within the board of directors, and there are no rules on this matter. This is in fact regarded as a question of strategic interest which should be determined by the Company and its Shareholders, in accordance with the particularities and circumstances of the Company’s governance and business model.

The special areas of responsibility exercised by the Board of Directors have particularities proper to each type of business and cannot be assigned without duly considering the characteristics of the fields in which the companies carry on their business.

Annual Report 2010 152

2.12. Number of meetings of the management and supervisory bodies, and reference to the minutes of these meetings

Body Number of meetings in 2010 Board of Directors 8 Audit Board 8

Minutes were drawn up for all meetings, as required by law.

2.13. Indication of the number of meetings of the Executive Board or the Executive Board of Directors, together with reference to the taking of minutes of these meetings and the forwarding of the same, together with the notice of meetings, as applicable, to the Chairman of the Board of Directors, the Chairman of the Audit Board or the Audit Committee, to the Chairman of the General and Supervisory Board and to the Chairman of the Financial Affairs Committee.

Body Number of meetings in 2010 Executive Board 45

There were 45 meetings of the Executive Board; minutes were drawn up for all meetings and forwarded to the Chairman of the Board of Directors and to the Chairman of the Audit Board; the minutes are also at the disposal of the Audit Committee.

2.14. Indication of the executive and non-executive members and, with regard to the latter, a list of members who would comply, if they were applicable, with the incompatibility rules provided for in article 414-A.1, except for item b), and the independence criterion referred to in article 414.5, both of the Companies Code.

Portucel has a Board of Directors comprising nine members – one Chairman and eight other Directors. Five of the members are executive directors and form an Executive Board, which was elected and whose powers were delegated by the Board of Directors, and the other four are non-executive directors.

Identification of the members of the Board of Directors, distinguishing between executive and non-executive directors:

Chairman of the Board of Directors: Pedro Mendonça de Queiroz Pereira (Non-executive) Member of the Board of Directors: José Alfredo de Almeida Honório (Chairman of the Executive Board) Member of the Board of Directors: Manuel Soares Ferreira Regalado (Member of Executive Board) Member of the Board of Directors: Adriano Augusto da Silva Silveira (Member of Executive Board) Member of the Board of Directors: António José Pereira Redondo (Member of Executive Board) Member of the Board of Directors: José Fernando Morais Carreira Araújo (Member of Executive Board)

Annual Report 2010 153

Member of the Board of Directors: Luís Alberto Caldeira Deslandes (Non-executive) Member of the Board of Directors: Manuel Maria Pimenta Gil Mata (Non-executive) Member of the Board of Directors: Francisco José Melo e Castro Guedes (Non-executive)

For the purposes of Article 414.5 of the Companies Code, we hereby disclose that the non-executive members of the Board of Directors identified above do not meet the requirements relating to the independence rules, and also for the purpose of Article 414-A.1, except for sub-paragraph b), one of the non-executive members of the Board of Directors, Mr. Pedro Mendonça de Queiroz Pereira, does not meet the requirements of the incompatibility rules, namely with regard to sub-paragraph h), insofar as he holds directorships in five companies outside the Portucel Group.

2.15. Indication of the legal and regulatory rules and other criteria forming the basis for the management body’s assessment of its members’ independence.

The assessment criteria are those set out in the Companies Code, the Securities Code and the Securities Market Commission Regulations in force.

2.16. Indication of the procedural rules for the selection of candidates for non-executive directorships and how these rules preclude any interference in the process by executive directors

There are no roles on the selection process for prospective non-executive directors. The selection process for all directors (executive and non-executive) is the sole responsibility of the company’s shareholders, who exercise this authority at the General Meeting. The executive directors accordingly have no say in the selection of non- executive directors.

2.17. Reference to the fact that the company’s annual management report includes a description of the work undertaken by non-executive directors and any constraints detected.

Annex II to this report contains a description of the work performed by the non-executive directors.

2.18. Professional qualifications of the members of the Board of Directors, indicating their professional activities over at least the last five years, the number of shares held in the company, the date of first appointment and of expiry of their term of office. and

Annual Report 2010 154

2.19. Office held by members of the Board of Directors in other companies, indicating that held in other companies of the same group.

All the members of the Board of Directors hold office in other companies, as specified below:

Pedro Mendonça de Queiroz Pereira

1. Type of directorship: Non-executive.

2. No. of shares held in company: holds no shares in company.

3. Professional qualifications: Completed secondary education in Lisbon and attended Instituto Superior de Administração.

4. Date when first appointed and expiry of term of office: 2004-2010.

5. Management office held in companies:

ƒ Companies in the Portucel Group:

- Chairman of the Board of Directors of Portucel - Empresa Produtora de Pasta e Papel, S.A. - Chairman of the Board of Directors of Soporcel – Sociedade Portuguesa de Papel, S.A. - Chairman of the Board of Directors of About the Future – Empresa Produtora de Papel, S.A.

ƒ Companies in other Groups / Other Entities:

- Manager of Cimentospar – Participações Sociais, SGPS, Lda. - Chairman of the Board of Directors of Ciminpart - Investimentos e Participações, SGPS, S.A. - Chairman of the Board of Directors of CMP - Cimentos Maceira e Pataias, S.A. - Chairman of the Board of Directors of Secil - Companhia Geral de Cal e Cimento, S.A. - Member of the Board of Directors of Secilpar Inversiones, SL. - Chairman of the Board of Directors of Seinpart - Participações, SGPS, S.A. - Chairman of the Board of Directors and Chairman of the Executive Board of Semapa - Sociedade de Investimento e Gestão, SGPS, S.A. - Chairman of the Board of Directors of Seminv - Investimentos, SGPS, S.A - Chairman of the Board of Directors of Cimigest, SGPS, S.A. - Chairman of the Board of Directors of Costa das Palmeiras – Turismo e Imobiliário, S.A. - Manager of Ecovalue – Investimentos Imobiliários, Lda.

Annual Report 2010 155

- Chairman of the Board of Directors of Longapar, SGPS, S.A. - Chairman of the Board of Directors of OEM - Organização de Empresas, SGPS, S.A.. - Chairman of the Board of Directors of Sodim SGPS, S.A. - Member of the Board of Directors of Tema Principal – SGPS, S.A. - Chairman of the Board of Directors of Terraços d´Areia – SGPS, S.A. - Chairman of the Board of Directors of Vértice – Gestão de Participações, SGPS, S.A.

6. Other professional activities in the last 5 years:

- Chairman of the Board of Directors of Cimo – Gestão de Participações Sociais, S.A. - Chairman of the Board of Directors of CMPartin – Inversiones y Participaciones Empresariales SL - Member of the Board of Directors of Parsecil, SL - Chairman of the Board of Directors of Parseinges – Gestão de Investimentos, SGPS, S.A. - Chairman of the Board of Directors of Semapa Inversiones, SL - Manager of Ecolua – Actividades Desportivas, Lda.

José Alfredo de Almeida Honório

1. Type of directorship: Executive.

2. No. of shares held in company: holds no shares in company.

3. Professional qualifications: Degree in economics from the Faculty of Economics, University of Coimbra, 1980.

4. Date when first appointed and expiry of term of office: 2004-2010.

5. Management office held in companies:

ƒ Companies in the Portucel Group:

- Chairman of the Executive Board and Member of the Board of Directors of Portucel – Empresa Produtora de Pasta e Papel, S.A. - Chairman of the Executive Board and Member of the Board of Directors of Soporcel – Sociedade Portuguesa de Papel, S.A. - Chairman of the Executive Board and Member of the Board of Directors of About the Future – Empresa Produtora de Papel, S.A.

Annual Report 2010 156

- Chairman of the Board of Directors of Portucel Florestal – Empresa de Desenvolvimento Agro- Florestal, S.A. - Chairman of the Board of Directors of PortucelSoporcel Energia SGPS,S.A. - Chairman of the Board of Directors of PortucelSoporcel Floresta SGPS, S.A. - Chairman of the Board of Directors of Impactvalue – SGPS, S.A. - Chairman of the Board of Directors of PortucelSoporcel Papel, SGPS, S.A. - Chairman of the Board of Directors of PortucelSoporcel Participações, SGPS, S.A. - Chairman of the Board of Directors of Countrytarget, SGPS - Chairman of the Board of Directors of Eucaliptusland, SA - Chairman of the Board of Directors of PortucelSoporcel Fine Paper, SA - Chairman of the Board of Directors of PortucelPapel Setúbal S.A. - Chairman of the Board of Directors of PortucelSoporcel Florestal, S.A. - Chairman of the Board of Directors of Soporcel Pulp, SA - Chairman of the Management Board of Tecnipapel, Lda - Member of the Board of Directors of Portucel Soporcel Sales & Marketing SA - Vogal da Direcção do RAIZ - Instituto de Investigação da Floresta e Papel

ƒ Companies in other Groups / Other Entities:

- Member of the Board of Directors of Seminv – Investimentos, SGPS, S.A. - Manager of Cimentospar – Participações Sociais, SGPS Lda. - Member of the Board of Directors of Ciminpart – Investimentos e Participações, SGPS, S.A. - Member of the Board of Directors of Seinpart Participações, SGPS, S.A. - Member of the Board of Directors of CMP – Cimentos Maceira e Pataias, S.A. - Member of the Board of Directors of Secil - Companhia Geral de Cal e Cimento, S.A. - Member of the Board of Directors e Membro da Comissão Executiva da Semapa - Sociedade de Investimento e Gestão, SGPS, S.A. - Member of the Board of Directors and of the Executive Board of CEPI – Confederation of European Paper Industries - Chairman of the General Board and Member of the Executive Board of CELPA – Associação da Indústria Papeleira

6. Other professional activities in the last 5 years:

- Chairman of the Board of Directors of Aliança Florestal – Sociedade para o Desenvolvimento Agro- Florestal, SA. - Manager of Hewbol, SGPS, Lda - Manager of Florimar – Gestão e Participações, SGPS, Sociedade Unipessoal, Lda

Annual Report 2010 157

- Member of the Board of Directors of Parsecil, SL. - Member of the Board of Directors of CMPartin – Inversiones y Participaciones Empresariales SL - Member of the Board of Directors of Betopal, SL. - Member of the Board of Directors of CIMO – Gestão de Participações, SGPS, S.A. - Member of the Board of Directors of Longapar, SGPS, S.A - Member of the Board of Directors of Semapa Inversiones, S.L. - Member of the Board of Directors of Parseinges – Gestão de Investimento, SGPS, S.A. - Member of the Board of Directors of ParcimInvestments BV

Manuel Soares Ferreira Regalado

1. Type of directorship: Executive

2. No. of shares held in company: holds no shares in company

3. Professional qualifications: Degree in Financial Affairs, from the Instituto Superior de Ciências Económicas e Financeiras, Lisbon (ISEG), 1972; Senior Executive Programme (SEP), London Business School (1997)

4. Date when first appointed and expiry of term of office: 2004- 2010

5. Management office held in companies:

ƒ Companies in the Portucel Group:

- Member of the Executive Board and Board of Directors of Portucel – Empresa Produtora de Pasta e Papel, S.A. - Member of the Executive Board and Board of Directors of Soporcel – Sociedade Portuguesa de Papel, S.A. - Member of the Executive Board and Board of Directors of About the Future – Empresa Produtora de Papel, S.A. - Chairman of the Board of Directors of Aflomec – Empresa de Exploração Florestal, S.A. - Member of the Board of Directors of Portucel Soporcel Florestal SA - Chairman of the Board of Directors of Atlantic Forests – Comércio de Madeiras, S.A. - Chairman of the Board of Directors dos Bosques do Atlântico, SL - Chairman of the Board of Directors Cofotrans – Empresa de Exploração Florestal, S.A. - Chairman of the Board of Directors of Enerforest – Empresa de Biomassa para Energia, S.A. - Member of the Board of Directors of Impactvalue, SGPS, S.A.

Annual Report 2010 158

- Member of the Board of Directors of Portucel Florestal – Empresa de Desenvolvimento Agro- Florestal, S.A. - Member of the Board of Directors of PortucelSoporcel Energia SGPS, S.A. - Member of the Board of Directors of PortucelSoporcel Floresta, SGPS, S.A. - Member of the Board of Directors of PortucelSoporcel Papel, SGPS, S.A. - Member of the Board of Directors of PortucelSoporcel Participações SGPS, S.A. - Chairman of the Board of Directors of Sociedade de Vinhos de Espirra – Produção e Comercialização de Vinhos - Member of the Management Board of Tecnipapel, - Sociedade de Transformação e Distribuição de Papel, Lda. - Chairman of the Board of Directors dos Viveiros Aliança – Empresa Produtora de Plantas, S.A. - Member of the Management Board of RAIZ - Instituto de Investigação da Floresta e Papel - Member of the Board of Directors of Portucel Soporcel Sales & Marketing SA - Manager of Portucel Moçambique, Lda - Member of the Board of Directors of Countrytarget, SGPS - Member of the Board of Directors of Eucaliptusland, SA - Member of the Board of Directors of PortucelSoporcel Fine Paper, SA - Member of the Board of Directors of Soporcel Pulp, SA - Member of the Board of Directors of Portucel Soporcel Papel, SGPS, SA

ƒ Companies in other Groups / Other Entities:

- Member of the General Board of CELPA - Associação da Indústria Papeleira

6. Other professional activities in the last 5 years:

- None

Adriano Augusto da Silva Silveira

1. Type of directorship: Executive.

2. No. of shares held in company: holds 2,000 shares in the company.

3. Professional qualifications: Degree in Chemical Engineering from the University of Porto, 1975.

4. Date when first appointed and expiry of term of office: 2007- 2010.

Annual Report 2010 159

5. Management office held in companies:

ƒ Companies in Portucel Group:

- Member of the Executive Board and Board of Directors of Portucel – Empresa Produtora de Pasta e Papel, S.A. - Member of the Executive Board and Board of Directors of Soporcel – Sociedade Portuguesa de Papel, S.A. - Member of the Executive Board and Board of Directors of About The Future – Empresa Produtora de Papel, S.A. - Member of the Board of Directors of Impactvalue, SGPS, S.A. - Member of the Board of Directors of PortucelSoporcel Energia, SGPS, S.A. - Member of the Board of Directors of PortucelSoporcel Floresta, SGPS, S.A. - Member of the Board of Directors of PortucelSoporcel Papel, SGPS, S.A. - Member of the Board of Directors of PortucelSoporcel Participações, SGPS, S.A. - Member of the Management Board of Tecnipapel - Sociedade de Transformação e Distribuição de Papel, Lda - Chairman of the Board of Directors of SPCG – Sociedade Portuguesa de Co-geração, S.A. - Chairman of the Board of Directors of Enerpulp – Co-geração Energética de Pasta, S.A. - Chairman of the Board of Directors of EMA 21, S.A. - Member of the Board of Directors of Portucel Soporcel Sales & Marketing SA - Vogal da Direcção do RAIZ – Instituto de Investigação da Floresta e Papel - Member of the Board of Directors of Countrytarget, SGPS - Member of the Board of Directors of Eucaliptusland, SA - Member of the Board of Directors of PortucelSoporcel Fine Paper, SA - Member of the Board of Directors of Soporcel Pulp, SA - Member of the Board of Directors of Portucel Papel Setúbal SA

6. Other professional activities in the last 5 years:

- Central Engineering Director for the Portucel Soporcel Group

António José Pereira Redondo

1. Type of directorship: Executive.

Annual Report 2010 160

2. No. of shares held in company: holds 6,000 shares in the company.

3. Professional qualifications: Degree in Chemical Engineering, University of Coimbra (1987); attended 4th year in Business Management at Universidade Internacional; MBA specialising in marketing, from the Portuguese Catholic University (1998).

4. Date when first appointed and expiry of term of office: 2007- 2010.

5. Management office held in companies:

ƒ Companies in Portucel Group:

- Member of the Executive Board and Board of Directors of Portucel – Empresa Produtora de Pasta e Papel, S.A. - Member of the Executive Board and Board of Directors of Soporcel – Sociedade Portuguesa de Papel, S.A. - Member of the Executive Board and Board of Directors of About The Future, S.A. - Member of the Board of Directors of PortucelSoporcel Energia, SGPS, S.A.. - Member of the Board of Directors of PortucelSoporcel Floresta, SGPS, S.A. - Member of the Board of Directors of PortucelSoporcel Papel, SGPS, S.A. - Member of the Board of Directors of PortucelSoporcel Participações, SGPS, S.A. - Member of the Board of Directors of Impactvalue, SGPS, S.A. - Chairman of the Board of Directors of Portucel Soporcel España S.A. - Member of the Management Board of Tecnipapel, Lda - Member of the Management Board of PIT – Portucel International Trading GmbH - Member of the Board of Directors of Portucel Soporcel Sales & Marketing SA - Member of the Board of Directors of Countrytarget, SGPS - Member of the Board of Directors of Eucaliptusland, SA - Member of the Board of Directors of PortucelSoporcel Fine Paper, SA - Member of the Board of Directors of Soporcel Pulp, SA - Member of the Board of Directors of Portucel Papel Setúbal SA - Member of the Board of Directors of Portucel Soporcel Afrique du Nord, SA - Member of the Board of Directors of Portucel Soporcel Austria GMBH - Member of the Board of Directors of Portucel Soporcel Deutschland GMBH - Member of the Board of Directors of Portucel Soporcel France EURL - Chairman of the Board of Directors of Portucel Soporcel International BV - Chairman of the Board of Directors of Portucel Soporcel Itália, SRL - Member of the Board of Directors of Portucel Soporcel North America, INC - Member of the Board of Directors of Portucel Soporcel Poland SP Z.O.O. - Chairman of the Board of Directors of Portucel Soporcel UK LTD

Annual Report 2010 161

6. Other professional activities in the last 5 years:

- Sales and Marketing Director for the Portucel Soporcel Group - Marketing Director for the Portucel Soporcel Group

José Fernando Morais Carreira de Araújo

1. Type of directorship: Executive.

2. No. of shares held in company: holds no shares in company.

3. Professional qualifications: Degree in Accountancy and Administration from Instituto Superior de Contabilidade e Administração do Porto (ISCAP) (1986); Higher Studies in Financial Control, Instituto Superior de Contabilidade e Administração do Porto (ISCAP) (1992); Official Auditor since 1995; Degree in law, Universidade Lusíada do Porto (2000); MA in accountancy, Instituto Superior de Ciências do Trabalho e da Empresa, Lisbon (ISCTE); Postgraduate studies in Advanced Financial Accounting; Postgraduate studies in fiscal law, Lisbon Faculty of Law – 2002/2003 Postgraduate studies in Corporate Governance, Instituto Superior de Economia e Gestão, Lisbon (ISEG) – 2006/2007.

4. Date when first appointed and expiry of term of office: 2007-2010.

5. Management office held in companies:

ƒ Companies in Portucel Group:

- Member of the Executive Board and Board of Directors of Portucel – Empresa Produtora de Pasta e Papel, S.A. - Member of the Executive Board and Board of Directors of Soporcel – Sociedade Portuguesa de Papel, S.A. - Member of the Executive Board and Board of Directors of About The Future, S.A. (GPS) - Member of the Board of Directors of Country Target SGPS, S.A. - Member of the Board of Directors of Eucaliptusland, S.A. - Director of Impactvalue, SGPS, S.A. - Chairman of the Management Board of PIT – Portucel International Trading GmbH - Manager of Portucel Moçambique, Lda - Member of the Board of Directors of Portucel Papel Setúbal S.A.

Annual Report 2010 162

- Chairman of PortucelSoporcel Cogeração de Energia, S.A. - Member of the Board of Directors of Bosques do Atlântico, S.L. - Member of the Board of Directors of PortucelSoporcel Energia, SGPS, S.A. - Member of the Board of Directors of PortucelSoporcel Fine Paper S.A. - Member of the Board of Directors of PortucelSoporcel Floresta, SGPS, S.A. - Member of the Board of Directors of PortucelSoporcel Papel, SGPS, S.A. - Member of the Management Board of PortucelSoporcel Logística do Papel - Member of the Board of Directors of PortucelSoporcel Participações, SGPS, S.A. - Member of the Board of Directors of Soporcel Pulp, SA - Member of the Board of Directors of Portucel Soporcel Sales & Marketing SA - Member of the Board of Directors of Portucel Soporcel España, S.A. - Member of the Board of Directors of Portucel Soporcel International NV - Member of the Board of Directors of Portucel Soporcel UK - Member of the Board of Directors of Portucel Soporcel France, EURL - Member of the Board of Directors of Portucel Soporcel Itália, SRL - Member of the Board of Directors of Portucel Soporcel Deutschland, GMBH - Member of the Board of Directors of Portucel Soporcel Austria, GMBH - Member of the Management Board of Portucel Soporcel Afrique du Nord - Member of the Management Board of Portucel Soporcel Poland SP.Z.O.O. - Member of the Board of Directors of Portucel Soporcel North America, INC - Member of the Management Board of Tecnipapel, Lda

6. Other professional activities in the last 5 years:

- Accounts and Tax Manager at Semapa, SGPS, S.A. from May 2002, and also at Secil S.A. from May 2002 to June 2006 and in Portucel S.A. from July 2006 to March 2007.

Luis Alberto Caldeira Deslandes

1. Type of directorship: Non-executive.

2. No. of shares held in company: holds no shares in company.

3. Professional qualifications: Chemical Engineer - Instituto Superior Técnico de Lisboa; Brewery Engineer – Inst. Superieur D’Agronomie de Louvain.

4. Date when first appointed and expiry of term of office: 2001- 2010.

Annual Report 2010 163

ƒ Management office held in companies:

- Member of the Board of Directors of Portucel – Empresa Produtora de Pasta e Papel, S.A. - Member of the Board of Directors of Soporcel – Sociedade Portuguesa de Papel, S.A. - Member of the Board of Directors of About The Future, S.A.

5. Other professional activities in the last 5 years:

- Member of the Executive Board da Portucel – Empresa Produtora de Pasta e Papel, S.A. for the three-year term 2004-2006

- Chairman of the Board of Directors of companies in the Portucel group: - Soporcel Italy SRL - Soporcel France EURL - Soporcel UK Ltd - Soporcel International Bv - Soporcel North America Inc - Soporcel Deutschland GmbH - Soporcel Austria GmbH

Manuel Maria Pimenta Gil Mata

1. Type of directorship: Non-executive.

2. No. of shares held in company: holds no shares in company.

3. Professional qualifications: Degree in chemical engineering from the Faculty of Engineering, Porto, 1966; International Courts in Senior Management in the Paper and Pulp Industry, Swedish paper Industry Federation, Markaryd, 1987.

4. Date when first appointed and expiry of term of office: 1998 - 2010.

5. Management office held in companies:

ƒ Companies in Portucel Group:

- Member of the Board of Directors of Portucel – Empresa Produtora de Pasta e Papel, S.A. - Member of the Board of Directors of Soporcel – Sociedade Portuguesa de Papel, S.A. - Member of the Board of Directors of About The Future, S.A.

Annual Report 2010 164

6. Other professional activities in the last 5 years: - Member of the Executive Board of Portucel – Empresa Produtora de Pasta e Papel, S.A. for the three-year term 2004-2006 - Membro da Comissão Executiva of Soporcel – Sociedade Portuguesa de Papel, S.A. for the three- year term 2004-2006 - Member of the Board of Directors of Soporcel – Gestão de Participações Sociais, SGPS, S.A. for the three-year term 2004-2006 - Chairman of the Board of Directors of Enerpulp, for the three-year term 2004-2006 - Chairman of the Management Board of Setipel, for the three-year term 2004-2006 - Chairman of the Management Board of SPCG, for the three-year term 2004-2006 - Chairman of the Board of Directors of Socortel, for the three-year term 2004-2006 - Member of the Management Board of Arboser for the three-year term 2004-2006 - Member of the Management Board of Portucel Soporcel Papel Sales e Marketing, ACE, for the three-year term 2004-2006 - Advisor to the Board of Directors of Semapa - Sociedade de Investimento e Gestão, SGPS, S.A.

Francisco José Melo e Castro Guedes

1. Type of directorship: Non-executive.

2. No. of shares held in company: holds no shares in company.

3. Professional qualifications: Degree in Finance from Instituto Superior de Ciências Económicas e Financeiras – Lisboa (1971); MBA from INSEAD – Fontainebleau. France (1976)

4. Date when first appointed and expiry of term of office: 2009-2010.

On 1 June 2009, in view of the resignation from the board of Eng. Carlos Eduardo Coelho Alves, the Board of Directors resolved to replace this member by co-opting Dr. Francisco José Melo e Castro Guedes as non- executive director for the term of office underway (2007-2010). The cooption was ratified at the General Meeting held on 15 March 2010.

5. Management office held in companies:

ƒ Companies in Portucel Group:

- Member of the Board of Directors of About The Future, S.A. - Member of the Board of Directors of Soporcel – Sociedade Portuguesa de Papel, S.A.

Annual Report 2010 165

ƒ Companies in other Groups / Other Entities:

- Member of the Board of Directors and member of Executive Board of SEMAPA – Sociedade de Investimento e Gestão, SGPS, SA. - Member of the Board of Directors of CMP- Cimentos Maceira e Pataias, S.A. - Member of the Board of Directors of SECIL – Companhia Geral de Cal e Cimento, S.A. - Member of the Board of Directors of SEMINV Investimentos, SGPS, SA - Member of the Board of Directors of SCG – Société des Ciments de Gabès, SA - Member of the Board of Directors of CDS- Ciments de Sibline, SGPS, SA - Member of the Board of Directors of CIMINPART-Investimentos e Participações, SGPS, S.A. - Member of the Board of Directors of SEINPART Participações, SGPS, S.A. - Chairman of the Board of Directors of SEMAPA Inversiones, SL - Member of the Board of Directors of SILONOR, S.A. - Member of the Board of Directors of SECILPAR, SL. - Manager of CIMENTOSPAR – Participações Sociais, SGPs, Lda - Chairman of the Board of Directors of VIROC PORTUGAL – Indústrias de Madeira e Cimento, S.A - Member of the Board of Directors of So.I.Me Liban S.A.L. - Manager of Serife – Sociedade de Estudos e Realizações Industriais e de Fornecimento de Equipamento, Lda. - Manager of FLORIMAR – Gestão e Participações, SGPS, Soc.Unipessoal, Lda; - Manager of HEWBOL – SGPS, Lda.

6. Other professional activities in the last 5 years: - Member of the Board of Directors of ENERSIS - Sociedade Gestora de Participações Sociais, S.A. - Member of the Board of Directors of ENERSIS II – Sociedade Gestora de Participações Sociais, S.A. - Member of the Board of Directors of PARSEINGES - Gestão de Investimentos, SGPS, S.A.

Annual Report 2010 166

Section III – General and Supervisory Board, Committee for Financial Affairs, Audit Committee and Audit Board

2.20. 2.21. Identification of the members of the Audit Board, declaring that members comply with the incompatibility rules provided for in article 414-A.1 and the independence criterion provided for in article 414.5, both of the Companies Code

Incompatibility Rules Independence Rules Complies Does not comply Complies Does not comply Duarte Nuno d’Orey da Cunha X X Miguel Camargo de Sousa Eiró X X Gonçalo Nuno Palha Gaio Picão Caldeira X X

2.22. Professional qualifications of the members of the Audit Board, professional activities over the last five years or more, the number of shares held in the company, date of first appointment and expiry of term of office. and 2.23. Office held by members of the Audit Board in other companies, indicating that held in other companies of the same group

Duarte Nuno d’Orey da Cunha

1. Professional qualifications: Degree in financial affairs, ISCEF (1965)

2. No. of shares held in company: 16,000 shares

3. Date when first appointed and expiry of term of office: 2007 – 2010

4. Does not hold office in other companies in the Portucel Group

5. Management office held in other companies:

- Member of the Audit Board of Semapa – Sociedade de Investimento e Gestão, SGPS, S.A. - Member of the Board of Directors of Vértice – Gestão de Participações, SGPS, SA - Member of the Board of Directors of Sociedade Agrícola da Quinta da Vialonga, SA - Chairman of the General Meeting of Sonaca, SGPS, SA - Chairman of the General Meeting of Cimipar – Sociedade Gestora de Participações Sociais, SA.

Annual Report 2010 167

6. Other professional activities in the last 5 years:

- Member of the Board of Directors of Beira-Rio – Sociedade Construtora de Armazéns, SA - Advisor to the Board of Directors of Cimilonga – Imobiliária SA - Member of the Board of Directors of Longavia – Imobiliária, SA. - Member of the Board of Directors of Sonagi SGPS, SA - Chairman of the Audit Board of Semapa – Sociedade de Investimento e Gestão SGPS, SA

Miguel Camargo de Sousa Eiró

1. Professional qualifications: Degree in law, University of Lisbon (1971).

2. No. of shares held in company: holds no shares in company.

3. Date when first appointed and expiry of term of office: 2007 – 2010

4. Does not hold office in other companies in the Portucel Group

5. Management office held in other companies:

- Member of the Audit Board of Semapa – Sociedade de Investimento e Gestão, SGPS, S.A.., (for the four-year term 2006 to 2009); - Chairman of the Audit Board of Semapa – Sociedade de Investimento e Gestão, SGPS, S.A. (for the four-year term 2010 to 2013).

6. Other professional activities in the last 5 years: - Legal practice

Gonçalo Nuno Palha Gaio Picão Caldeira

1. Professional qualifications: Degree in law, Portuguese Catholic University, Lisbon (1990); Concluded professional traineeship at the Lisbon District Council of the Bar Association (1991); Master of Business Administration (MBA), Universidade Nova de Lisboa (1996); Attended postgraduate course in real estate management and valuation, ISEG (2004)

2. No. of shares held in company: holds no shares in company.

3. Date when first appointed and expiry of term of office: 2007 - 2010.

Annual Report 2010 168

4. Does not hold office in other companies in the Portucel Group

5. Management office held in other companies:

- Member of the Audit Board of Semapa – Sociedade de Investimento e Gestão, SGPS, S.A.. (second term of office from 2010 to 2013); - Manager of Loftmania – Gestão Imobiliária, Lda. (2008-2009) - Manager of LINHA DO HORIZONTE – Investimentos Imobiliários, Lda

6. Besides the offices described previously, there were no other professional activities in the past 5 years

The annual report issued by the Audit Board on its work during the year is published in conjunction with the Report & Accounts, and is available at the Group’s website.

2.24. Reference to the fact that the audit board conducts an annual assessment of the external auditor and to the possibility of it proposing to the general meeting the auditor’s dismissal with due cause.

The choice of external auditor and the remuneration fixed for its services are validated in advance by the Audit Board.

In addition to aspects relating to the choice and remuneration of the external auditor, it should be noted that the Audit Board holds joint meetings with the external auditor over the course of the year, and the two bodies are in constant and direct contact.

In the exercise of its supervisory duties, the Audit Board can also assess the work of the external auditor, and is not prevented from proposing its dismissal with due cause to the General Meeting, provided the legal rules are observed on the submittal of motions.

The audit firm, in this case Price WaterhouseCoopers, rotated the external auditor (the partner responsible for the auditing the Company’s affairs) with effect as from 2010, and the previous auditor complied with the maximum period established in the recommendation. It is also the understanding of Portucel’s Audit Board that the recommendation on the rotation of the auditor is adopted, as it has considered that the quality of work performed by the existing audit firm and its accrued experience in Portucel outweigh any possible drawbacks in retaining this firm.

Annual Report 2010 169

2.25 to 2.29 – not applicable

Section V – Remuneration

2.30. Description of the remuneration policy for members of the management and supervisory bodies as referred to in Article 2 of Law no. 28/2009, of 19 June.

The policy on remuneration of members of the management and supervisory bodies is described in annex IV.

2.31. Indication of the annual remuneration earned individually by members of the company’s management and supervisory bodies, including fixed and variable remuneration and, with regard to the latter, indication of the different component parts, the portion which is deferred and the portion already paid.

Remuneration: Board of Directors

(amount in euros) Net Income Social Gross Fixed Variable tax Security Pedro Queiroz Pereira 877,580 392,216 0 1,269,796 789,796 480,000 Portucel 000 000 Group companies 877,580 392,216 0 1,269,796 789,796 480,000 José Honório 1,055,113 472,311 0 1,532,491 956,368 576,123 Portucel 168,335 75,758 0 245,546 245,546 0 Group companies 886,778 396,553 0 1,286,945 710,822 576,123 Manuel Regalado 529,143 254,932 0 783,601 339,164 444,437 Portucel 472,939 233,240 0 705,705 261,268 444,437 Group companies 56,204 21,692 0 77,896 77,896 0 Adriano Silveira 353,389 173,058 7,043 536,275 294,505 241,770 Portucel 163,195 78,575 0 241,770 0 241,770 Group companies 190,194 94,483 7,043 294,505 294,505 0 António Redondo 380,675 185,706 7,043 575,192 294,505 280,687 Portucel 189,464 91,223 0 280,687 0 280,687 Group companies 191,211 94,483 7,043 294,505 294,505 0 Fernando Araújo 377,676 191,296 7,043 575,170 294,518 280,652 Portucel 189,441 91,211 0 280,652 0 280,652 Group companies 188,235 100,085 7,043 294,518 294,518 0 Luís Deslandes 116,565 61,912 11,725 190,318 150,318 40,000 Portucel 116,565 61,912 11,725 190,318 150,318 40,000 Group companies 0 0 0 0 0 0 Manuel Gil Mata 100,897 52,032 9,658 163,816 123,816 40,000 Portucel 100,897 52,032 9,658 163,816 123,816 40,000 Group companies 0 0 0 0 0 0 Francisco Nobre Guedes 53,838 16,862 0 70,700 70,700 0 Portucel 53,838 16,862 0 70,700 70,700 0 Group companies 0 0 0 0 0 0 Total 3,844,874 1,800,325 42,511 5,697,359 3,313,690 2,383,669

Annual Report 2010 170

Remuneration: Audit Board

Fixed Variable (amounts in euros) Remuneration Remuneration Total

Duarte da Cunha 16.968 0 16.968 Miguel Eiró 12.120 0 12.120 Gonçalo Caldeira 12.120 0 12.120

Total 41.208 41.208

As stated in chapter 0.3 of this report, the Company does not defer payment of a significant portion of the variable income, and the amounts indicated in these tables were effectively paid in 2010 to the members of the Board of Directors and the Audit Board.

The amounts previously presented in relation to the fixed remuneration earned by the Board of Directors differ from those disclosed in no. 7 of the Notes to the Financial Statements, and are reconciled as follows:

Board of Directors 3,244,159 Official auditor (Note 34) 275,507 Audit Board 41,208 Officers of the General Meeting 9,500 3,570,374

Board of Directors 3,570,374 Net variation in estimate of remuneration payable -256,683 3,313,690

2.32. Information on how remuneration is structured in order to align the interests of members of the management body with the long term interests of the company, and on how it is based on performance assessment and discourages excessive risk-taking.

In addition to the details supplied in the text of the remuneration policy contained in Annex IV, it should be noted that the stability of the shareholder structure and of the composition of the Company’s board of directors means that the interests of these officers are clearly compatible with those of the Company, as may be seen from a comparative analysis of the results presented in recent years and the remuneration paid.

Annual Report 2010 171

2.33. In relation to the remuneration of executive directors: a. Reference to the fact that the remuneration of executive directors includes a variable component and information on how this component depends on a performance assessment; b. Indication of the company bodies empowered to assess the performance of executive directors; c. Indication of the pre-set criteria for assessing the performance of executive directors; d. Specification of the proportion of directors’ pay represented by variable and fixed components, and indication of upper limits for both components; e. Information on deferred payment of the variable component of remuneration, indicating the deferral period. f. Details of how payment of variable remuneration is subject to the company’s continued positive performance over the deferral period; g. Sufficient information on the criteria applied in allocating variable remuneration in shares and on the continued holding by executive directors of the shares in the company acquired in this manner, on any contracts concluded with regard to these shares, specifically hedging or transferring risk, the respective limits and the respective proportion represented of total annual remuneration;

With regard to sub-paragraphs a, b, and c, the text on the remuneration policy contained in Annex IV provides a direct response on these issues.

With regard to sub-paragraph d), there are no upper limits on either the variable or fixed components of remuneration.

On the issue of deferring remuneration and making it conditional on positive performance by the company over the deferral period, no such measure has been adopted for the reasons set out above and there are no pre-set rules whereby payment of variable remuneration is conditional on the continued positive performance of the company.

There are no rights to shares or share options, and the criteria underlying the variable components of directors’ pay are those set out in the remuneration policy contained in Annex IV. The Company operates no share or option scheme, or any other share-based incentive scheme.

h. Sufficient information on the criteria applied in allocating variable remuneration in options and indication of the deferral period and the price for exercising options;

Not applicable, given that variable remuneration does not take the form of options.

Annual Report 2010 172

i. Identification of the main parameters and grounds for any annual bonus system and any other non-cash benefits;

The main parameters for allocating annual bonuses are based on the Company’s results for each financial year, combined with merit and the performance assessment for each individual director.

There are no non-cash benefits allocated by the Company.

j. Remuneration paid in the form of profit sharing and/or payment of bonuses, and the grounds on which these bonuses and/or profit sharing were granted;

The Company operates no profit-sharing scheme. In relation to payment of bonuses, the Remuneration policy set out in Annex IV describes the criteria applied for payment of variable remuneration.

l. Compensation paid or owing to former executive directors in relation to termination of their directorships during the period;

The situation in question has never arisen in the Company, and when it does the legal rules will apply.

m. Reference to contractual limits on severance pay for director, and the respective relationship with the variable remuneration component;

The Company has no contractual limitation on compensation payable for unfair dismissal of a director.

n. Sums paid on any grounds by controlled or controlling companies or companies belonging to the same group;

The information on remuneration paid in item 2.31 includes a breakdown of total remuneration paid by other controlled companies in a relationship with Portucel.

o. Description of the main features of complementary or early retirement schemes for directors, indicating whether they have been assessed by the general meeting;

There are no early retirement arrangements for directors.

Annual Report 2010 173

Complementary retirement and survivor’s pension schemes in force in the company are described in detail in no. 27 of the Notes to the Consolidated Financial Statements, which are part of the Report and Accounts subject to approval by the General Meeting. At 31 December 2010, the value of liabilities allocated to post-employment benefits plans for give directors of the Portucel Group stood at 5,571,507 € (31 December 2009: 4,533,046€).

p. Estimated value of relevant non-cash benefits considered as remuneration and not included in the foregoing.

No non-cash benefits which may be regarded as remuneration are assigned to any director.

q. Arrangements which prevent executive directors from entering into contracts which undermine the rationale of variable remuneration.

There are no arrangements preventing executive directors from entering into contracts which undermine the rational of their variable remuneration, nor can the Company envisage circumstances in which such arrangements might be instituted.

2.34. Reference to the fact that the remuneration of non-executive members of the management body does not include variable components.

As stated above, the remuneration of non-executive directors can include a variable component which, while unrelated to the performance of the Company, is directly related to occasional contributions made on matters deemed to concern the strategic development of the Company and the related Group.

2.35. Information on the policy adopted in the company on whistleblowing (reporting channels, persons entitled to receive reports, required treatment of such reports and indication of persons and bodies with access to the information and their respective involvement in the procedure).

The company has “Regulations on the Reporting of Irregularities”, governing the reporting by company employees of any irregularities allegedly committed within the company.

These regulations lay down the general duty to report alleged irregularities, requiring that such reports be made to the Audit Board and also providing for an alternative solution in the event of a conflict of interests on the part of the Audit Board with regard to the report in question.

The Audit Board, which may be assisted for these purposes by the Internal Control Committee, shall investigate all facts necessary for assessment of the alleged irregularity. This process ends with the report being filed or else submission to the Board of Directors or the Executive Board, depending on whether a company officer is

Annual Report 2010 174

implicated or not, of a proposal for application of the measures most appropriate in the light of the irregularity in question.

The regulations also contain other provisions, namely designed to safeguard the confidentiality of communications, non-prejudicial treatment of employees making reports and dissemination of the respective rules in the company.

No irregular situation was reported in the course of 2010.

Annual Report 2010 175

Section V – Specialised Committees

Powers and responsibilities of specialised committees in the Company:

Audit Committee

The Audit Committee was set up by resolution of the Board of Directors to exercise the powers expressly assigned to it. These include assessing procedures for monitoring the financial information (accounts and reports) disclosed, and the time limits for disclosure, and specifically auditing the Group’s annual, six-monthly and quarterly accounts for publication and reporting on them to the Board of Directors, before the directors resolve to approve and sign them. The Audit Committee advises the Board of Directors on the choice of External Auditor and pronounces on the scope of the Internal Auditor’s activities.

Without prejudice to the normal powers of the Board of Directors, the Audit Board is authorized by the directors to exercise the board’s supervisory and audit powers, and may accordingly inspect all the accounting records kept by the company and its associates and obtained accounting and financial information from group employees, to the extent to which such investigations are necessary in order to the committee to discharge its responsibilities.

Corporate Governance Supervisory Committee

The Corporate Governance Committee is responsible for overseeing and applying corporate governance rules in the Group, and for drawing up the respective code of conduct.

Sustainability Committee

The Sustainability Committee has been entrusted with developing corporate policy and strategy on issues of social and environmental responsibility, and issues a bi-annual sustainability report.

Internal Control Committee

The Internal Control Committee is responsible for assessing any irregularity within the company; an irregularity is deemed to comprise any alleged breach occurring within the company of the rules established in law, regulations or the articles of association, together with failure to comply with the duties and ethical principles set

Annual Report 2010 176

out in the Code of Ethics, contained in Annex I. The Internal Control Committee is also responsible for detecting and controlling all relevant risks in the company’s activities, namely financial, property and environmental risks.

Pension Fund Supervisory Committee

The Pension Fund Supervisory Committee was set up during 2009 in order to monitor compliance with the pension plan and the management of the respective pension fund. The committee consists of three representatives of the company and two representatives of the fund’s beneficiaries, designated by the Workers’ Committee. The committee’s responsibilities include checking compliance with the rules applicable to the pension plan and to management of the respective pension fund, pronouncing on proposals for transferring management and other significant changes in the contractual arrangements for the fund and its management, and on the winding up of the fund or a section of the fund.

Property Risks Analysis and Monitoring Committee

The company has a Property Risks Analysis and Monitoring Committee which is coordinated by the director responsible for this area and comprises the Plant managers, the Financial Director and the Internal Audit Director. The committee meets as and when required, and its main task is to pronounce on the systems in place in the company for safeguarding against property risks, in particular measures taken to comply with recommendations issued in the light of inspections by reinsurers, and on the adequacy of the insurance taken out by the Group, in terms of scope, type and value of cover.

Ethics Committee

Following on from the drafting and approval of the Ethics Code by the Executive Board in the course of 2010, an Ethics Committee has been established, issuing an annual report on compliance with the provisions of the new code. This report must detail all irregularities which the Committee has detected, and the findings and follow-up proposals emerging from the various cases examined. This report is included in Annex V to this Corporate Governance Report.

2.36. Identification of the members of the committees set up to assess the individual and collective performance of executive directors, to reflect on the governance system adopted by the company and to identify potential candidates with the right profile for directorships.

The overall performance of the executive directors is assessed by the non-executive members of the Board of Directors, and the individual assessments are subject to an appraisal by the Remuneration Committee. The

Annual Report 2010 177

Corporate Governance Committee has conducted an assessment of the form of governance adopted by the Company, and of the degree of compliance with standards of good practice and governance rules in force. The selection of suitable candidates for directorships is regarded as the sole province of the shareholders.

Number of meetings of committees with management and supervisory responsibilities during the period in question, with reference to the taking of minutes of these meetings.

Body Number of meetings in 2010 Remuneration Committee 1 Corporate Governance Committee 4 Sustainability Committee 4 Internal Control Committee 2 Audit Committee 4 Environmental Board 3 Pension Fund Supervisory Board 1

All these committees keep minutes of the meetings held during the year.

2.37. Reference to the fact that one member of the Remuneration Committee has knowledge and experience in the field of remuneration policy.

All the members of the Remuneration Committee have wide experience and knowledge concerning matters relating to the remuneration of company officers, in view of the offices held in the course of their professional careers. Special attention is drawn to the fact that the Chairman of the committee is the representative of Egon Zehnder, a multinational specializing in human resources, and especially senior management recruitment.

Annual Report 2010 178

2.38. Reference to the independence in relation to the board of directors of individuals or entities contracted to sit on the remuneration committee by employment or service contract and, when applicable to the fact that such persons have current relationships with the company’s consultants.

The members of the Remuneration Committee have no contractual relationship with the Company, and are wholly independent of the Board of Directors, although Egon Zehnder occasionally provides consultancy services to the Company in the field of management recruitment.

2.39. Composition of the remuneration committee or equivalent body, if any, identifying the respective members who are also directors, or the directors’ spouses, relative or kin, in the direct line to the third degree, inclusive.

The composition of the Remuneration Committee:

Chairman: José Gonçalo Maury, representing Egon Zehnder

Members: João Rodrigo Appleton Moreira Rato Frederico José da Cunha Mendonça e Meneses

No member of this committee or any of their spouses, relatives or in-laws, in the direct line, to the third degree, is a member of the company’s management body.

Annual Report 2010 179

Chapter III – Information and Auditing

3.1. Capital structure, including indication of shares not admitted for trading, different categories of shares, rights and duties attached to the same, and the percentage of the capital represented by any such category.

Portucel’s share capital is represented solely by ordinary shares, with a nominal value of 1 euro each, the same rights and duties being attached to all shares.

The share capital consists of a total of 767,500,000 shares, corresponding to an equal total nominal value in euros with all shares currently admitted for trading. Up to 30 November 2010, 230,250,000 shares belonging indirectly to Semapa, representing 30% of the share capital and acquired in the 2nd phase of privatization of the company, were not admitted to trading. The restriction on trading was due to the terms established in Resolution 194/2003, of 30 December, of the Council of Ministers, relating to phase 2 of the privatization of Portucel, under which the shares acquired by Seinpart SGPS, SA were not to be disposed of during five years. When this period expired, the shares were admitted for trading, as per the Prospectus of 30 November 2010, without any change to the shareholder structure of the Company.

Annual Report 2010 180

3.2. Qualifying holdings in the issuer’s share capital, calculated in accordance with Article 20 of the Securities Code.

% of capital and voting % of non-suspended Entity Nº Shares rights voting rights

Semapa SGPS SA 579,140,456 75.46% 76.97% Semapa - Soc. de Investimento e Gestão, SGPS, S.A. 105,522,241 13.75% 14.02% Seinpar Investments B.V. 241,583,015 31.48% 32.11% Seinpart - Participações, SGPS, S.A. 230,839,400 30.08% 30.68% Seminv - Investimentos, SGPS, S.A. 590,400 0.08% 0.08% Cimentospar - Participações Sociais, SGPS, L.da 589,400 0.08% 0.08% Duarte Nuno d'Orey da Cunha (*) 16,000 0.00% 0.00%

Bestinver Gestión, S.A. SGIIC 15,443,547 2.012% 2.052% Bestinver Bolsa, F.I. 8,687,115 1.13% 1.15% Bestinfond, F.I. 3,730,925 0.49% 0.50% Bestinver Mixto, F.I, 1,738,263 0.23% 0.23% Soixa Sicav 601,314 0.08% 0.08% Texrenta Inversiones, SICAV 131,976 0.02% 0.02% Rodaon Inversiones, SICAV 55,644 0.01% 0.01% Tibest Cinco, SICAV, SA 41,723 0.01% 0.01% Invers.en Bolsa Siglo XXI, SICAV 41,241 0.01% 0.01% Loupri Inversiones 33,165 0.00% 0.00% Aton Inversiones, SICAV, SA 31,053 0.00% 0.00% Corfin Inversiones, SICAV 29,192 0.00% 0.00% Tigres Inversiones, SICAV, SA 28,869 0.00% 0.00% Mercadal de Valores,SICAV, SA 26,704 0.00% 0.00% H202 Inversiones SICAV 24,283 0.00% 0.00% Divalsa de Inversiones, SICAV, SA 24,168 0.00% 0.00% Entrecar Inversiones, SICAV, SA 21,352 0.00% 0.00% Pasgom Inversiones, SICAV 21,184 0.00% 0.00% Cartera Millennium SICAV 18,236 0.00% 0.00% Zamarron SICAV 17,287 0.00% 0.00% Acciones, Cup.y Obli. Segovianas 17,165 0.00% 0.00% Renvasa 16,590 0.00% 0.00% Artica XXI, SICAV, SA 14,686 0.00% 0.00% Campo de Oro, SICAV 13,318 0.00% 0.00% Linker Inversiones, SICAV, SA 12,729 0.00% 0.00% Trascasa 10,988 0.00% 0.00% Tordesillas de Inversiones 10,728 0.00% 0.00% Heldalin Inversiones, SICAV 9,920 0.00% 0.00% Tawarzar 2-S2, Sicav 7,643 0.00% 0.00% Mazquita de Inversiones 7,111 0.00% 0.00% Opec Inversiones, SICAV 6,757 0.00% 0.00% Jorik Investment 6,187 0.00% 0.00% Iberfama SICAV, S.A. 6,031 0.00% 0.00%

(*) Member of Portucel Governing Bodies

As at 31/12/2010, Portucel held (indirectly through subsidiaries) 15,054,358 own shares, corresponding to 1.96% of the share capital.

Annual Report 2010 181

3.3. Identification of shareholders with special rights, and description of such rights.

No shareholders or categories of shareholders in Portucel have special rights.

3.4. Any restrictions on the transferability of shares, such as consent clauses for disposal, or limitations on ownership of shares.

Portucel has no restrictions of any kind on the transferability or ownership of its shares.

3.5. Shareholders’ Agreements known to the company or which might lead to restrictions on the transfer of securities or voting rights

The company is not aware of the existence of any shareholders’ agreement which might lead to restrictions on the transfer of securities or voting rights.

3.6. Rules applicable to amendment of the articles of association;

Portucel has no special rules on the amendment of its articles of association. The general rules deriving from the Companies Code therefore apply to these issues.

3.7. Control mechanisms in an employee ownership scheme insofar as voting rights are not directly exercised by employees.

There is no employee ownership scheme in Portucel.

3.8. Description of evolution in the issuer’s share price, taking into account:

a) The issuing of shares or other securities entitling the holder to subscribe or acquire shares; b) Announcement of results; c) Payments of dividends for each category of share, indicating the net dividend per share.

The shares of companies in the pulp and paper industry performed well in 2010, especially in Europe, recording substantial gains over the course of the year. The HX Paper & Forest index, featuring the shares of the three main Scandinavian companies in the sector, was up by approximately 56% over the year. This performance was in contrast to that of the main companies in Latin America, where some of the main Brazilian producers recorded significant losses in their share prices.

Annual Report 2010 182

The main European stock exchanges ended 2010 with no single trend emerging. The London and Frankfurt exchanges recorded gains respectively of 14.0% and 16.1%, whilst the exchanges of outlying countries were down by 17.4%, in the case of the IBEX 35, and 10.3% in the case of Portugal’s PSI20. The French CAC 40 index dropped some 3% whilst the Euronext 100 and Eurostoxx 50 indexes held relatively stable.

In this environment, Portucel shares ended the year up 15%, recording the third largest gain on the Lisbon stock exchange index. The lowest price for the year was 1.824€/share during the 1st quarter (on 25 February), after which the shares moved consistently upwards, reaching a high of 2.415€/share (on 20 December). Average trading stood at 480 thousand shares per day.

The following graph shows the listed share price, identifying the dates of publication of results, the General Meeting and distribution of dividends.

€/share Listed price of Portucel Shares in 2010

2.5 17/12 Extraordinary 15/03 14/04 General Meeting 2.4 General Meeting of Payment of Shareholders Dividends 2.3

2.2

2.1

2.0 27/12 Payment of 1.9 reserves 27/ 07 1.8 Disclosure of 1st half results 27/10 1.7 02/02 27/04 Disclosure of 3rd Disclosure of 2010 Disclosure of 1st quarter results 1.6 results quarter results 2010 2010 1.5 2009 2010 2010 2010 2010 2010 2010 2010 2010 2010 2010 2010 2010 2010 2010 2010 2010 2010 2010 2010 2010 2010 2010 2010 2010 2010 2010 12- 01- 01- 02- 02- 03- 03- 04- 04- 05- 05- 06- 06- 07- 07- 07- 08- 08- 09- 09- 10- 10- 11- 11- 12- 12- 12- 31- 14- 28- 11- 25- 11- 25- 08- 22- 06- 20- 03- 17- 01- 15- 29- 12- 26- 09- 23- 07- 21- 04- 18- 02- 16- 30-

No shares or other securities were issued during 2010.

Dividends for the financial year of 2009 were payable as from 14 April 2010. The gross dividend per share was 0.0825 €.

After approval at the Extraordinary General Meeting held on 17 December, of distribution to shareholders of free reserves of € 120,037,000, the company paid out 0.1564€ per share on 27 December.

Annual Report 2010 183

3.9. Description of the dividend distribution policy adopted by the company, including the dividend per share distributed during the last three periods.

Powers to propose dividends lie with the Board of Directors of Portucel, subject to the legislation in force and the articles of association. Under the articles of association, as amended by the general meeting of 14.04.2007, the general meeting resolves on the amount to be distributed in dividends, by simple majority of votes.

In the last three financial years, the following dividends were distributed per share in circulation: ƒ 2008 (for the financial year of 2007) 0.1050 € per share ƒ 2009 (for the financial year of 2008) 0.1050 € per share ƒ 2010 (for the financial year of 2009) 0.0825 € per share

Analysis of the dividends to be distributed in 2011 in relation to the financial year of 2010, should take into consideration payment of reserves of 0.1564 € per share, in December 2010.

3.10. A description of the main characteristics of the share and share option plans adopted or valid for the financial year in question, the reason for adopting said scheme and details of the category and number of persons included in the scheme, share-assignment conditions, non-transfer of shares clauses, criteria on share-pricing and the exercising option price, the period during which the options may be exercised, the characteristics of the shares to be distributed, the existence of incentives to purchase and/or exercise options, and the responsibilities of the Board of Directors for executing and/or changing the plan.

Details shall also include the following:

a) The number of shares required for exercise of the options allocated and the number of shares required for the exercise of the exercisable options at the start and end of the year in question; b) The number of options allotted, exercisable and expired during the year; c) The general meetings’ appraisal of the plans adopted or in force during the period in question.

There are no share or share option plans in force in the company.

3.11. Description of the main transactions and operations carried out between the company and the members of the management and supervisory body, the owners of qualifying holdings or controlled, controlling or group companies, when economically significant for any of the parties involved, except

Annual Report 2010 184

for those transactions or operations that are carried out on an arms-length basis and form part of the company’s normal business.

There are no transactions or operations which are economically significant to any of the parties involved.

3.12. Outline essential details of transactions and operations carried out between the company and holders of qualifying holdings or any related entities, under Article 20 of the Securities Code, not on an arm’s length basis.

All the company’s transactions with third parties, be they shareholders owning qualifying holdings or entities in any way related to them, were carried out on an arm’s length basis.

3.13. Description of the procedures and criteria applicable to intervention by the supervisory body for the purposes of prior assessment of transactions to be carried out between the company and holders of qualifying holdings or related entities, under Article 20 of the Securities Code.

No transactions of significant importance as referred to above have taken place involving the Company. However, were they to occur, it would fall to the Audit Board to analyze the situations and issue its opinion, this duty being expressly established in its rules of procedure.

The Audit Board also received periodic reports from the external auditor in which, in the course of its duties, the auditors checks application of remuneration policies and systems and the effectiveness and workings of internal control arrangements, reporting any shortcomings detected.

3.14. Description of statistical data (number, average and maximum values) relating to transactions subject to prior intervention by the supervisory body.

The Company has not undertaken transactions requiring the prior intervention of the Audit Board, despite this board’s extensive knowledge of the company’s affairs; however, were it to be justifies, the Audit Board would study the situation and issue its opinion, as is expressly established in its rules of procedure.

3.15. Reference to the existence of an Investor Support Office or other similar service:

Portucel has had an Investor Support Office since November 1995, set up with a view to handling contact, on a permanent and appropriate basis, with the financial community – investors, shareholders, analysts and regulatory authorities – and to publish the company’s financial reports and any other information of relevance to

Annual Report 2010 185

its stock market performance, in keeping with principles of coherence, regularity, fairness, credibility and opportunity.

All mandatory disclosures, such as information on the company name, its status as a public company, registered offices and other details required by Article 171 of the Companies Code, are available at the Group’s website, at www.portucelsoporcel.com. Disclosures of quarterly results, half-yearly and annual reports and accounts, together with the respective press releases, list of company officers, the financial calendar, the articles of association, and full information of new developments are also available at Portucel’s website, in the Investors’ section, in Portuguese and English. The website also contains the notices of general meetings, and all motions tabled for discussion and vote at general meetings.

Portucel’s Market Relations Officer is Joana de Avelar Pedrosa Rosa Lã Appleton who may be contacted by telephone (265 700 566) or by email ([email protected]); these contact details are supplied on Portucel’s website, in the investors’ section.

3.16. Indication of annual remuneration paid to the auditor or other individuals or entities belonging to the same network and borne by the company and/or by controlled, controlling or group entities and details of the percentage relating to such services:

In the financial year ended 31 December 2010, expenditure on legal auditing of accounts, other audits and fiscal consultancy totalled 560,769 euros, breaking down as follows:

a) Legal auditing services: 393,626 euros (70.2%) b) Fiscal consultancy services: 86,367 euros (15.4%) c) Other reliability assurance services: 80,776 (14.4%)

Legal auditing services include financial audits of the Groups subsidiaries and foreign companies; The services described as fiscal consultancy and others consist essentially of supporting services to assure compliance with fiscal obligations, in Portugal and abroad, and also surveys of situations in relation to operational business processes, which resulted in no consultancy on the redesign of existing practices, procedures or controls.

The vast majority of services indicated as “other reliability assurance services” relate to the issuing of opinions on request for reimbursement of expenses under contracts with AICEP and compliance with financial ratios; the Company is required to obtain these opinions under contracts it has signed, and not because of service requested with any other purpose.

Annual Report 2010 186

The Board of Directors considers that there are sufficient procedures to safeguard the independence of auditors through the analysis conducted by the audit committee of the proposed work and the careful specification of this work when the auditors are contracted.

Annual Report 2010 187

ANNEX I

CODE OF ETHICS

1. General Aims and Values 1.1 The Code of Ethics as foundation of the Portucel Group’s culture The pursuit of the aims set out in this Code of Ethics, respect for its values and compliance with its rules of conduct together form the professional ethos of the Portucel business universe. The Code shall be distributed to investors, clients, suppliers, regulatory authorities, competitors and representatives of the communities with which the group deals, and shall govern the professional conduct of all those working in the Group’s companies and other organizations.

The Code of Ethics is to be viewed as setting standards of conduct, which Portucel Group and all those working and interacting with it should follow and respect. It should accordingly be interpreted as a benchmark for behaviour, applying beyond the specific reach of its clauses.

Portucel Group will assure that the Code of Ethics is made available to all its staff and arrange for specific training in this field, at all levels, in order to assure that the Code is disseminated, generally understood and mandatorily put into practice. It will also make permanent arrangements for direct and confidential communication, through the Board of Directors, allowing any member of Portucel Group staff to clarify the interpretation of the Code, to resolve any queries and make good any lacunae which may arise in its application.

An Ethics Committee is also set up, comprising three independent members of good standing, appointed for this purpose by the Board of Directors.

The Ethics Committee is the body responsible for appraising and assessing any situation which may arise in relation to compliance with the rules established in this Code involving any Board member, and shall also advise the Board of Directors on matters relating to application and interpretation of this Code.

1.2 Fundamental aims The fundamental aims pursued by Portucel Group are based on creating value and an appropriate level of return for investors, by offering the highest standards of quality in the supply of goods and services to clients, through the recruitment, motivation and development of the most able and highly skilled professionals, within a meritocratic culture permitting its employees to enjoy personal and professional

Annual Report 2010 188

development and the Group to position itself at the forefront of the markets in which it operates, maintaining a policy of sustainable management of natural resources, mitigation of environmental impacts and fostering of social development in the areas in which it carries on its business operations.

1.3 Values The principles and rules of conduct of the Code of Ethics derive from values regarded as fundamental for Portucel Group, which should be pursued on an ongoing basis in the course of its business, and in particular: • in protecting the interests and rights of shareholders and safeguarding and increasing the value of assets belonging to Portucel Group; • in the good governance of Group companies; • in scrupulous compliance with the requirements of the law, the articles of association and regulations applicable to Portucel Group’s operations and companies; • in the observance of duties of loyalty and confidentiality, and in assuring the principle of the professional accountability of the staff in the exercise of their respective duties; • in the resolution of conflicts of interests and the application to staff of scrupulous and transparent rules in situations involving business transactions; • in observance by institutions and individuals of the highest standards of integrity, loyalty and honesty, both in dealings with investors, suppliers, clients and regulators, and in interpersonal relations between members of Portucel Group staff; • in good faith in business dealings and scrupulous compliance with contractual obligations to clients and suppliers; • in strict compliance with the legislation in force on competition practices; • in recognizing equality of opportunity, individual merit and the need to respect and advance human dignity in professional relationships and business activities; • in guaranteeing safety and well-being at the workplace; • in the adoption of social responsibility principles and practices; • in the genuine and careful pursuit of sustainable development; • in promoting a permanent stance of dialogue with all stakeholders and respect for their principles and values.

2 Scope of application The Code of Ethics applies to all corporate officers and staff of the Portucel Group, notwithstanding other applicable legal or regulatory requirements.

For the purposes of this Code of Ethics, the following definitions shall apply:

Annual Report 2010 189

• Staff – all persons who work or render services, on a permanent or casual basis, to Portucel Group companies, including, namely, employees, service providers, agents and auditors; • Clients – individuals or organizations to which Portucel Group companies supply products or services; • Suppliers – individuals or organizations which supply products or services to Portucel Group companies; • Stakeholders – individuals or organizations with which Portucel Group companies deal in their business, institution or social activities, including shareholders, officers, staff, suppliers, business partners or members of the community with whom Portucel Group interacts.

The Code of Ethics accordingly describes the ethical and professional conduct expected by the Company in connection with the pursuit of its business activities and dealings with third parties, and is of instrumental importance to the business policy and culture followed and fostered by the Group.

The Board members, and in particular the Executive Directors, who in their daily conduct should set an example of ethical behaviour for the whole Group, are required to exercise special diligence in adopting, implementing and enforcing the rules contained in the Code.

The Ethics Committee has authority to oversee the conduct of the members of the corporate bodies, in relation to matters concerning application of the Code of Ethics.

3 Rules of Conduct 3.1 Legality 3.1.1. All Portucel Group’s activities shall be guided by strict compliance with the applicable rules deriving from law, the articles of association and regulations.

3.1.2. In its conduct Portucel Group shall cooperate at all times with the public authorities, and specifically with regulatory bodies, complying with requests made to it and adopting forms of behaviour which permit these authorities to exercise their powers.

3.2 Diligence and courtesy 3.2.1. Portucel Group shall strive to ensure that all clients are treated with professionalism, diligence and care, with Group staff responding in full to all enquiries and making every effort to support clients in reaching their decisions.

3.2.2. Portucel Group staff shall behave courteously and politely at all times and display due care and professionalism in their dealings with clients, suppliers and other stakeholders or any other person or organization, with any kind of dealings with the Company.

Annual Report 2010 190

3.2.3 All of Portucel Group’s relationships shall be based on values of truth and transparency, and all staff shall conduct themselves in keeping with high standards of honesty and integrity.

3.3 Integrity Bribery and other corrupt practices are prohibited, in all active and passive forms, through act or omission, or by creating or maintaining situations of favouritism or other irregularities, together with conduct such as may create expectations of favouritism in dealings with Portucel Group;

3.3.1. Portucel Group and its staff shall decline any gifts which may be considered or interpreted as attempts to influence the company or the member of staff. In the event of doubt, staff shall give written notice of these situations to their hierarchical superior or the Board of Directors.

3.3.2. If any staff member is approached with an attempt at corruption, he or she shall notify their hierarchical superior or the Board of Directors in writing, describing how they were approached and supplying all details regarded as essential for the relevant Portucel Group bodies, namely the respective Internal Audit service, to assess the situation and take action.

3.3.3. The Board of Directors shall notify the Ethics Committee in writing of all facts of which it learns under the terms of the preceding paragraph.

3.4 Secrecy 3.4.1.Members of staff shall assure the confidentiality of all information belonging to the Group, other staff, clients, suppliers or stakeholders, of which they may learn in the course of their duties, and shall only use this information in the interest of Portucel Group.

3.4.2. Portucel Group and its staff shall guarantee strict confidentiality in relation to all personal data belonging to staff, clients, suppliers, stakeholders or third parties, of which they learn solely through their work and business. This data is deemed to include information of a strategic nature concerning production methods, product and brand characteristics, IT data concerning clients, suppliers and of a personal nature, together with technical documentation relating to any project carried out or underway.

3.4.3 Staff shall maintain confidentiality, on the terms set out in the preceding paragraphs, even after cessation of their employment contracts with Portucel Group companies and irrespective of the cause of cessation, for a period of three years thereafter. The information subject to the duty of confidentiality shall not be used in order to prejudice Portucel Group companies and may only be disclosed to third parties when so required by law, provided the Board of Directors is notified in advance of such disclosure, in writing.

Annual Report 2010 191

3.5. Accounting practices 3.5.1. Portucel Group shall observe and comply strictly with generally accepted accounting principles and criteria.

3.5.2. Portucel Group shall arrange for auditing and other procedures to be conducted by independent bodies, to which it shall make available information detailing its economic, financial, social and environmental risks, and undertaking to apply the most appropriate measures to eliminate or mitigate the risks involved.

4 Rules on conduct in the workplace 4.1 Working atmosphere 4.1.1 Portucel Group shall actively promote courtesy, loyalty, civility and assertiveness in relations between staff members, fostering group feeling, with strict respect for individual rights and freedoms.

4.1.2 Portucel Group shall promote team spirit, the sharing of common goals and mutual help between staff.

4.1.3 Staff shall not seek to obtain personal advantages at their co-workers’ expense, and their conduct shall be guided by compliance with legal and contractual obligations and respect for their hierarchical superiors and other Portucel Group staff, behaving in a cordial and respectful manner, and avoiding any type of conduct which might undermine the image and reputation of other members of staff.

4.1.4 The health, safety and well-being of its staff is a priority for Portucel Group, and accordingly all staff shall seek to familiarize themselves and comply with the legislation in force and with internal rules and recommendations. Immediate notice must be given of any accident or hazard to health and safety in the workplace, in accordance with the said rules, and the necessary or advisable preventative measures shall be adopted.

4.2. Professional specialization and development 4.2.1 Portucel Group will advance the personal and professional development and specialization of its staff, promoting appropriate training activities.

4.2.2 Portucel Group will make every effort to assure its staff high levels of job satisfaction and self- realization, operating a fair and appropriate pay policy, and providing opportunities for personal and professional development over the course of careers, in keeping with criteria of merit and prevailing

Annual Report 2010 192

market conditions for equivalent situations, in accordance with the Performance Assessment System in place.

4.2.3 For their part, Portucel Group staff shall make efforts to update their skills and to undergo training on an ongoing basis, in order to develop their knowledge and technical expertise and to improve the services rendered to PGs, clients and other stakeholders.

4.3. Equality of opportunities 4.3.1. Portucel Group recognizes that all citizens are equal, and guarantees compliance with conventions, treaties and other legislation protecting the universal and fundamental rights of citizens, operating within the framework of reference of the Portuguese Constitution, the United Nations Universal Declaration of Human Rights and the International Labour Organization.

4.3.2 Portucel Group shall assure equality of opportunities in recruitment, hiring and professional development, only valuing professional aspects and adopting the measures it sees fit to combat and prevent any form of discrimination or differentiated treatment on the basis of ethnic or social origin, religious beliefs, nationality, gender, marital status, sexual orientation or physical disability.

4.3.3 Portucel Group shall protect its staff against any type of insulting or other discriminatory behaviour, encouraging respect for human dignity as one of the underlying principles of the Group’s culture and policies.

4.3.4 Portucel Group will never employ child or forced labour, nor will it ever collude with such practices, adopting the measures deemed appropriate to combat such situations, namely by public denunciation whenever they come to its attention.

4.4. Transparency, honesty and integrity 4.4.1. The staff of Portucel Group will comply with the responsibilities assigned to them, even in adverse circumstances, in a professional and responsible manner, namely within the limits of risk tolerance defined for the Company and in keeping with the budgetary targets for the areas in which they work.

4.4.2. Portucel Group staff shall conduct themselves at all times so as to pursue the interests of the Company, and shall immediately notify their hierarchical superior of any situation which might give rise to a conflict of interests, namely if, in the course of their duties, they are called on to intervene in processes or decisions which directly or indirectly involve organizations, entities or persons with which they work or have worked, or to which they are connected by ties of kinship or friendship. In the event of any doubt as to their on impartiality, they shall notify their hierarchical superior.

Annual Report 2010 193

4.4.3. Portucel Group staff undertake not to carry on any outside work, paid or unpaid, which might directly prejudice their professional performance or Portucel Group’s business or interests.

4.4.4. Portucel Group staff shall immediately inform their superiors on learning of any conduct which might undermine compliance with the Code of Ethics and which is clearly contrary to the values championed herein.

4.4.5. Portucel Group staff shall make sensible and reasonable use of the working resources at their disposal, avoiding waste and undue use.

4.4.6. Portucel Group staff shall care for the Group’s property, and not behave wilfully or negligently in any manner which might undermine its state of repair.

5. Dealings with stakeholders and other entities 5.1. Dealings with shareholders 5.1.1. The primary aim of Portucel Group is an ongoing quest to create value for shareholders, supported by a commitment to standards of excellence in professional and business performance, in the exercise of social responsibility and the pursuit of sustainable development.

5.1.2. Shareholders shall be treated in strict compliance with the legal rules applicable to their relations with each other and with their companies, namely those contained in the Companies Code.

5.2.Dealings with clients, suppliers, service providers and third parties

5.2.1. Portucel Group shall assure that all the terms for sale of its products to clients are clearly defined, and Group companies and their staff shall assure scrupulous compliance with these terms.

5.2.2. The suppliers and providers of services to Portucel Group shall be selected on the basis of objective criteria, taking into consideration the terms proposed, guarantees effectively provided and overall optimization of advantages for the Group. One of the selection criteria shall be compliance, by these service providers and suppliers, with rules of conduct consistent with the principles laid down in this Code.

5.2.3. Portucel Group and its staff shall negotiate at all times in keeping with the principles of good faith and full compliance with all their obligations.

Annual Report 2010 194

5.2.4. Portucel Group undertakes to monitor the ethical conduct of its suppliers and to adopt immediate and strict measures in cases where such conduct is questionable.

5.3. Relationship with competitors The competition practices of Portucel Group companies shall comply strictly with the legislation in force, in keeping with market rules and criteria, and with a view to assuring fair competition,

5.4. Dealings with political movements and parties Dealings between Portucel Group and its staff, on the one hand, and political movements or parties, on the other, shall be conducted in compliance with the legal rules in force, and in the course of these dealings staff members shall not invoke their relationship with Portucel Group.

6. Securities trading Portucel Group staff who are in possession of relevant information, not yet made public, which might potentially influence the listed prices of shares in Portucel, shall not, during the period prior to disclosure of such information, trade securities issued by Group companies, strategic partners or companies involved in transactions or dealings with the Group, not disclose this information to third parties. In particular, estimates of results, decisions on significant acquisitions or partnerships and the winning or loss of important contracts constitute forms of privileged information.

7. Press releases and advertising 7.1. The information released by Portucel Group to the media and those intended for advertising purposes shall: • be issued solely by the units or offices authorized to do so; • comply with the principles of legality, rigour, opportunity, objectivity, veracity and clarity; • safeguard secrecy and confidentiality so as to protect the Group’s interests; • respect the cultural and ethical norms of the community and human dignity; • contribute to an image of consistency which adds to the value and dignity of Portucel Group, promoting its good name in society.

8. Social Responsibility and Sustainable Development 8.1. Portucel Group accepts its social responsibility to the communities in which it carries on its business activities, as a means of contributing to their advancement and well-being.

8.2. The sustainable development of Group companies is regarded as the business contribution to their present and future development through pro-active management of the environmental, social and

Annual Report 2010 195

economic impacts of their respective activities, through a permanent commitment to application of best practices.

8.3. Portucel Group companies shall participate and encourage its staff to participate actively in initiatives relating to environmental protection, energy efficiency and efficient resource management, assigning preference to the use of materials produced in accordance with sustainability principles.

8.4. Portucel Group will seek to encourage its staff to take part in socio-cultural activities and to perform voluntary work.

8.5. The staff of Portucel Group companies shall seek to ensure that, in the course of their business, no harm or damage is caused directly or indirectly to the community’s heritage, caring for its external image by showing respect for archaeological, architectural and environmental heritage and improving the quality of life enjoyed by citizens.

8.6. Portucel Group regards sustainable development as a strategic aim for assuring economic growth and contributing to a more developed society, preserving the environment and non-regenerating resources for future generations.

9. Non-compliance 9.1. Failure to comply with the general and mandatory rules of conduct established in this Code of Ethics shall constitute serious misconduct, subject to disciplinary proceedings, notwithstanding any possible civil or criminal liability.

9.2. The Board of Directors shall be notified immediately in writing of any instance of non-compliance which come to light, and shall pronounce on the facts within 30 days of being informed.

9.3. If it is found, initially or whilst the proceedings are pending, that a company officer may be involved, the Board of Directors shall forward the file to the Ethics Committee which shall then proceed accordingly and may, if justified, inform any relevant judicial authority of the facts.

9.4. The personnel assessment system shall include a mandatory reference on the individual appraisal sheet for each staff member of any failure to comply with rules deriving from this Code of Ethics.

9.5. The Ethics Committee shall draw up an annual report on compliance with the rules established in this Code of Ethics, detailing all irregularities of which it is aware, and setting out the conclusions and follow-up proposals adopted in the different cases examined.

Annual Report 2010 196

9.6. For the purposes envisaged in the preceding paragraph, the Board of Directors shall notify the Ethics Committee of all relevant facts which come to its attention.

9.7. The Ethics Committee’s Report shall be annexed to the Corporate Governance Report.

Annual Report 2010 197

ANNEX II

NOTE ON THE ACTIVITIES OF PORTUCEL’S NON-EXECUTIVE DIRECTORS

Portucel’s non-executive directors – Mr. Pedro Mendonça de Queiroz Pereira, Eng. Manuel Maria Pimenta Gil Mata, Eng. Luís Alberto Caldeira Deslandes and Dr. Francisco José Melo e Castro Guedes attended all meetings of the Board of Directors and were copied on all preparatory information for these meetings.

Whenever requested from the Executive Board they received diligent and satisfactory explanations or complementary information concerning the company’s day-to-day affairs.

On the chairman’s invitation, they took part in various meetings of the Executive Board, especially those where the matters under discussion extended beyond day-to-day affairs, such as the review of the Portucel Group’s corporate image and decision on initiatives for the expansion and future development of the Group.

In the course of their duties, the non-executive directors frequently requested detailed information on decisions taken by the Executive Board, in order to assess the performance of the company’s executive management in the light of annual and longer terms plans and the budgets approved from time to time by the Board of Directors.

Executive management decisions were also closely scrutinised at the quarterly meetings, and the non-executive directors were provided with information which enabled them to assess the performance of the Executive Board.

In addition to monitoring day-to-day operating matters, the non-executive directors paid special attention to following through the major capital expenditure projects implemented in 2009 and those currently underway.

In his capacity as Chairman of the Board of Directors, Mr. Pedro Queiroz Pereira called and coordinated all the meetings of the board during the financial year of 2010. In the course of his duties he has coordinated, in cooperation with the other executive and non-executive directors, the development and strategic options of the Company and the Group to which it belongs.

Also in connection with his capacity as Chairman of the Board of Directors, he held regular meetings with the Chairman of the Executive Board in order to obtain information and appropriate documentation, to keep him informed on the evolving affairs of the company and its subsidiaries, and on progress in the capital expenditure projects recently undertaken, such as the new paper mill in Setúbal.

He was informed in advance of the order of business for each meeting of the Executive Board, and of the resolutions adopted over the course of the year, accompanied by the respective supporting documents.

Annual Report 2010 198

During the year he held a series of informal meetings with the other non-executive directors, in order to assess the performance of the Executive Board.

As a non-executive member of Portucel’s Board of Directors, Eng. Manuel Maria Gil Mata took part in all board meetings and was copied on all preparatory information for these meetings, as were all the other members of the Board of Directors. On the Chairman’s invitation, he also took part in several meetings of the Executive Board, especially when the topics under discussions went beyond day-to-day management affairs, and had a bearing on the Group’s plans for future expansion and development.

In the course of his duties, as non-executive director, he frequently requested detailed information on the decisions adopted by the Executive Board, with a view to correctly assessing the performance of the company’s executive directors in the light of multi-annual and annual business plans and budgets as periodically approved by the Board of Directors.

At the quarterly meetings, when the executive management of the company is subject to in-depth analysis, he was also provided with information allowing him to appraise the performance of the Executive Board.

In addition to monitoring normal business affairs, he paid special attention to progress on the Major Investment Projects at the consolidation phase, such as the New Setúbal Paper Mill, the new Biomass Boilers in Cacia and Setúbal and implementation of the new Steam Turbogenerator in Figueira da Foz (TG4).

In the field of industrial operations, he monitored with special care the progress made by the New Paper Mill in Setúbal, and in particular advances in operating performance, product quality development and the course of the learning curve.

As Chairman of the Sustainability Committee, he chaired quarterly the quarterly meetings of this committee, and coordinated and supervised in detail the drafting of the Group’s Sustainability Report for 2008/2009, which was published and distributed in Portuguese and English in the final quarter of 2010.

He continued to oversee and contribute to the Group’s Code of Ethics, which underwent a series of reviews and adjustments, leading eventually to its official publication.

He monitored the activities of the Environmental Board, which held its three regular meetings in 2010 as planned. This board kept in close contact with industrial operations, biodiversity, forestry and energy issues and with capital expenditure projects.

Annual Report 2010 199

He took part in a range of activities in connection with the institutions and associations to which the company belongs.

As member of the committee responsible for questions relating to the Group’s corporate image, Eng. Luís Alberto Caldeira Deslandes took part in a number of meetings on this issue with the external consultant selected for this purpose.

In addition to monitoring day-to-day operational activities, he paid particular attention to progress on the Major Investment Projects at the consolidation phase, such as the New Setúbal Paper Mill, following through its evolving production capacity, in terms of efficiency and quality.

As Chairman of Portucel’s Corporate Governance Committee he called and chaired several working meetings held by the committee in the course of 2010, with a total of 4 formal meetings, following through developments related to corporate governance issues over the year, and in particular with regard to implementation in the corporate governance model of the new recommendations from the Securities Market Commission, as well as analyzing the various reports published during the year by the same Commission, by the corporate governance advisory panel and by other associations.

Dr. Francisco José Melo e Castro Guedes focussed his activities primarily on monitoring the work of the Executive Board, in order to obtain the necessary information on all aspects of Company and Group affairs, and over the course of the year provided his contribution to the executive directors in his specialist fields, both at board meetings and informally.

He accordingly took an active part in all meetings of the Board of Directors held in 2010. This non-executive director is currently devoting his closest attention to following through the Company’s projects for international expansion, thanks to his considerable expertise in this area.

Annual Report 2010 200

ANNEX III

REPORT AND OPINION OF THE AUDIT BOARD

Financial year of 2010

Shareholders,

1. In accordance with the law, the articles of association and the terms of our mandate, we are pleased to submit the report on our supervisory activities in 2010 and to issue our opinion on the Consolidated Management Report and Consolidated Financial Statements presented by the Board of Directors of Portucel – Empresa Produtora de Pasta e Papel, SA, for the financial year ended 31 December 2010.

2. Over the course of the year we monitored the affairs of the company and its most significant affiliates and associates, with the regularity and to the extent we deemed appropriate, through periodic meetings with the directors. We checked that the accounts were kept correctly and duly documented, and verified the effectiveness of the risks management, internal control and internal audit systems. We also monitored compliance with the law and the articles of association. We encountered no constraints in the course of our supervisory activities.

3. We met several times with the official auditor and external auditor, PricewaterhouseCoopers & Associados, SROC, Lda, monitoring its auditing activities and checking its independence. We assessed the Legal Accounts Certificate and the Audit Report, and are in agreement with the Legal Accounts Certificate presented.

4. In the course of our work we found that:

a) the Consolidated Income Statement, the Consolidated Statement of Recognized Income and Expense, the Statement of Changes in Consolidated Equity and the Consolidated Statement of Cash Flows and the corresponding Notes provide an adequate picture of the state of the company’s affairs and its profits;

b) the accounting policies and valuation criteria adopted comply with the International Financial Reporting Standards (IFRS) as adopted in the European Union and suitably assure that such criteria lead to a correct valuation of the company’s assets and profits, taking due account of the analyses and recommendations of the external auditor;

c) the Consolidated Management Report provides a sufficient description of the business affairs of the company and its affiliates included in the consolidated accounts, offering a clear account of the most significant developments during the year.

d) the Corporate Governance Report includes the information required by Article 245-A of the Securities Code.

5. Accordingly, taking into consideration the information received from the Board of Directors and the company departments, and also the conclusions of the Legal Accounts Certificate and the Audit Report, we recommend that:

Annual Report 2010 201

a) the Consolidated Management Report be approved;

b) the Consolidated Financial Statements be approved;

6. Finally, the members of the Audit Board wish to acknowledge and express their thanks for the assistance received from the Board of Directors, the senior managers of the company and other staff.

Lisbon, 15 March 2011

The Chairman of the Audit Board

Duarte Nuno d’Orey da Cunha

Member

Miguel Camargo de Sousa Eiró

Member

Gonçalo Nuno Palha Gaio Picão Caldeira

Annual Report 2010 202

ANNEX IV

STATEMENT ON THE REMUNERATION POLICY FOR THE MEMBERS OF PORTUCEL’S MANAGEMENT AND SUPERVISORY BODIES FOR SUBMISSION TO THE GENERAL MEETING OF SHAREHOLDERS OF 19 MAY2011

I. Introduction

Portucel’s Remuneration Committee drew up a remuneration policy statement for the first time in 2008, successfully submitting it for approval by the company’s general meeting that year. This statement was drafted in line with a recommendation issued on this matter by the Securities Market Commission (Comissão de Mercado de Valores Mobiliários).

The Remuneration Committee declared at this time that it felt that the options set out in the statement should be maintained until the end of the term of office of the company’s officers then underway. This term ran from 2007 to 2010.

It was then necessary to review the statement in 2010 in the light of the provisions of Law 28/2009, of 19 June, requiring the Remuneration Committee to submit a remuneration policy statement each year to the General Meeting.

It remains the view of this Committee that, as a set of principles, the remuneration policy statement should be kept stable throughout the term of office of the company officers, unless exceptional or unforeseen circumstances require a change.

We have therefore opted to proposal for approval a statement with the same content as that currently in force.

There is a significant divide between the two most common systems for setting the remuneration of company officers. The first is for such remuneration to be set by the general meeting; this solution is rarely adopted, being rather impractical for a variety of reasons. The second is for remuneration to be set by a Committee, which decides in keeping with criteria on which the shareholders have not had the opportunity to pronounce.

The solution now before us amounts to an intermediate system whereby the shareholders can appraise a remuneration policy to be followed by the Committee. This seeks to draw on the best features of both theoretical systems, as we propose to do in this document, reasserting the position we have previously defended whilst also including the contribution from the additional experience and expertise acquired by the company, and complying with the new legal requirements in this field as referred to above.

II. Legal requirements and recommendations

This statement is issued in the legal framework formed by Law 28/2009, of 19 June (as referred to above), and the recommendations of the Securities Market Commission set out in the Corporate Governance Code issued by the Commission.

In addition to rules on the frequency with which the statement must be issued and approved and on disclosure of its content, this law also stipulates that this content should include information on:

Annual Report 2010 203

a) Arrangements for aligning the interests of members of the management body with those of the company;

b) Criteria for setting the variable component of remuneration;

c) The existence of share or share option pay schemes for members of the management and supervisory bodies;

d) The possibility of the variable component of remuneration, if any, being paid, wholly or in part, after the accounts have been finalized for the entire term of office;

e) Rules limiting variable limitation in the event of the company’s results revealing significant deterioration in the company’s performance in the last period for which accounts are closed or when such deterioration may be expected in the period underway.

The current recommendations of the Securities Market Commission make the following requirements:

II.1.5.2. In addition to the content referred to in Article 2 of Law 28/2009, of 19 June, the statement on remuneration policy for the management and supervisory bodies referred to in the same article should contain sufficient information on: i) which corporate groups were chosen for the purposes of comparing remuneration policies and practices with a view to setting remuneration; ii) severance pay for directors.

II.1.5.3. The remuneration policy statement referred to in Article 2 of Law 28/2009 should also cover the pay of management personnel as defined by Article 248-B.3 of the Securities Code, when such pay includes a significant variable component. The statement should be detailed and the policy presented should take into account, namely, the company’s long term performance, compliance with the rules applicable to the company’s business activities and restraint in risk-taking.

III. Rules deriving from law and the articles of association

Any remuneration system must inevitably take into account both the general legal rules and the particular rules established in the articles of association, if any.

The legal rules for the directors are basically established in Article 399 of the Companies Code, from which it follows that:

• Powers to fix the remuneration lie with the general meeting of shareholders of a committee appointed by the same.

• The remuneration is to be fixed in accordance with the duties performed and the company’s state of affairs.

• Remuneration may be fixed, or may consist in part of a percentage of the profits for the period, but the maximum percentage to be allocated to the directors must be authorized by a clause in the articles of association, and shall not apply to distribution of reserves or any part of the profits for the period which could not, under the law, be distributed to shareholders.

For the Audit Board and the officers of the General Meeting, the law states that the remuneration shall consist of a fixed amount, determined in the same way by the general meeting, or by a committee appointed by the same, in accordance with the duties performed and the company’s state of affairs.

For the members of the Audit Board and the officers of the General Meeting, the law lays down that the remuneration shall consist of a fixed sum, which shall be determined in the same way by the general meeting of shareholders or by a committee appointed by the same, taking into account the duties performed and the state of the company’s affairs.

Annual Report 2010 204

A specific clause in Portucel’s articles of association (article no. 21) provides that the remuneration of directors may be differentiated. The second paragraph of this clause lays down that the General Meeting may issue rules on pension plans and complementary pension schemes for directors.

This is the formal framework to be observed in defining remuneration policy.

IV. Historical background

From the company’s transformation into a sociedade anónima in 1991 and through to 2004, the remuneration of all of Portucel’s directors consisted of a fixed component, payable fourteen times a year, and set by a Remuneration Committee, and of a variable component, determined annually, depending on the specific circumstances, by decision of the State, as shareholder.

After the first phase of privatization in 2004, the formal principle was first instituted of remuneration being divided into fixed and variable components, the latter being based on the company’s results and the specific performance of each director.

This procedure has been repeated annually since 2004, with directors receiving fixed remuneration and also a variable component.

Since the incorporation of the company, members of the Audit Board have received fixed monthly remuneration. In the case of the officers of the General Meeting, since remuneration for these officers was first instituted it has been set on the basis of the number of meetings actually held.

V. General Principles

The general principles to be observed when setting the remuneration of the company officers are essentially those which in very general terms derive from the law: on the one hand, the duties performed and on the other the state of the company’s affairs. If we add to these the general market terms for similar situations, we find that these appear to be the three main general principles:

a) Duties performed.

It is necessary to consider the duties performed by each company officer not only in the formal sense, but also in the broader sense of the work carried out and the associated responsibilities. Not all the executive directors are in the same position, and the same is also true, for example, of the members of the audit board. Duties have to be assessed in the broadest sense, taking into account criteria as varied as, for example, responsibility, time dedicated, or the added value to the company resulting from a given type of intervention or representation of a given institution.

The fact that time is spent by the officer on duties in other controlled companies also cannot be taken out of the equation, due, on the one hand, to the added responsibility this represents, and, on the other hand, to the existence of another source of income.

It should be noted that Portucel’s experience has shown that the directors of this company, contrary to what is often observed in other companies of the same time, cannot be neatly split into executive and non-executive. There are a number of directors with delegated powers and who are generally referred to as executive directors, but some of directors without delegated powers are closely involved in the life of the company in a variety of ways. These are essential aspects which must inevitably be considered when setting remuneration.

Annual Report 2010 205

b) The state of the company’s affairs.

This criterion must also be understood and interpreted with care. The size of the company and the inevitable complexity of the associated management responsibilities, is clearly one of the relevant aspects of the state of affairs, understood in the broadest sense. There are implications here for the need to remunerate a responsibility which is greater in larger companies with complex business models and for the capacity to remunerate management duties appropriately.

d) Market criteria.

It is unavoidably necessary to match supply to demand when setting any level of pay, and the officers of a corporation are no exception. Only respect for market practices makes it possible to keep professionals of a calibre required for the complexity of the duties performed and the responsibilities shouldered, thereby assuring not only their own interests but essentially those of the company, and the generation of value of all its shareholders. In the case of Portucel, in view of its characteristics and size, the market criteria to be considered are those prevailing internationally, as well as those to be observed in Portugal.

VI. Compliance with legal requirements and recommendations

Having described the historical background and the general principles adopted, we shall now consider the issue of compliance by these principles with the relevant legal requirements.

1. Article 2 a) of Law 28/2009. Alignment of interests.

The first requirement that Law 28/2009 regards as essential in terms of the information in this statement is for a description of the procedures which assure that the directors’ interests are aligned with those of the company.

We believe that the remuneration system adopted in Portucel is successful in assuring such alignment. Firstly, because the remuneration sets out to be fair and equitable in the light of the principles set out, and secondly because it links the directors to results by means of a variable remuneration component which is set primarily in the light of these results.

2. Article 2 b) of Law 28/2009. Criteria for the variable component.

The second requirement established by the law is for information on the criteria used to determined the variable component.

The company’s results are the most important factor in setting the variable remuneration: not the results seen as an absolute value, but as viewed from a critical perspective in the light of what may be expected of a company of this size and characteristics, and in view of the actual market conditions.

In setting the variable component, other factors are also considered, resulting in the main from the general principles - market, specific duties, the state of the company’s affairs. These factors are often more individual, relating to the specific position and performance of each director.

3. Article 2 c) of Law 28/2009. Share or option plans.

The decision whether or not to provide share or option plans is structural in nature. The existence of such a plan is not a simple add-on to an existing remuneration system, but rather an underlying to change to the existing system, at least in terms of the variable remuneration.

Annual Report 2010 206

Although a remuneration system of this type is not incompatible with the company’s articles of association, we feel that the wording of the relevant provisions in the articles and the historical background to the existing system argue in favour of maintaining a remuneration system without any share or option component.

This is not to say that we see no merits in including a share or option component in directors’ remuneration, nor that we would not be receptive to restructuring directors’ remuneration to incorporate such a plan. However, such a component is not essential in order to promote the principles we defend and, as we have said, we do not believe that this was the fundamental intention of the company’s shareholders.

4. Article 2 d) of Law 28/2009. Date of payment of variable remuneration.

Specialists in this field have draw attention to significant advantages in deferring payment of the variable component of remuneration to a date when the entire period corresponding to the term of office can in some way be appraised.

We accept this principle as theoretically sound, but it appears to us to offer few advantages in the specific case of Portucel and other similar companies.

One of the main arguments supporting this system is that directors should be committed to achieving sustainable medium-term results, and that the remuneration system should support this, avoiding a situation where remuneration is pegged simply to one financial year, which may not be representative, and which may present higher profits at the cost of worse results in subsequent years.

However, whilst this danger is real and is worth safeguarding against by means of systems such as this in companies where the capital is completely dispersed and the directors may be tempted to take a short term view, maximizing quick results by sacrificing long term potential, this does not correspond to the situation in a company such as Portucel, with a stable shareholder structure and management, where these concerns are inherently less of an issue.

5. Article 2 e) of Law 28/2009. Procedures for capping variable remuneration.

Procedures of this kind are designed to limit variable remuneration in the event of the results showing a significant deterioration in the company’s performance in the last reporting period or when such a deterioration may be expected in the period underway.

This type of provision also reflects a concern that good performance in the short term, which may boost directors’ remuneration, could be achieved at the cost of future performance.

For obvious reasons, the arguments presented above also apply here. It should also be noted that a system of this kind would have little practical effect if not combined with significant deferral of remuneration, which is not proposed for Portucel.

6. First part of Recommendation II.1.5.2. Comparative information.

In relation to groups of companies whose remuneration policies and practices have been taken as the baseline for setting remuneration, this Committee took into consideration, to the extent of the information accessible, all Portuguese companies of equivalent size, namely PSI-20 companies, and also companies in international markets with characteristics similar to those of Portucel.

7. Second part of Recommendation II.1.5.2. Termination and severance pay.

Annual Report 2010 207

There are no agreements, and no such provisions have been defined by this Committee, on payments by Portucel relating to dismissal or termination by agreement of Directors’ duties.

8. Recommendation II.1.5.3. Inclusion of managers in this statement.

The Remuneration Committee has no proposal or statement to make on this issue, as it is the express understanding of the Board of Directors that it has sole powers over this matter and that it is not in the company’s interest to comply with this recommendation.

VII. Specific Options

The specific options for the remuneration policy we propose are as follows:

1. The remuneration of executive directors shall comprise a fixed component and a variable component.

2. The remuneration of non-executive directors shall comprise only a fixed component, or else a fixed component and a variable component, as for executive directors, whenever justified by the nature of the duties actually exercised and their degree of responsibility and involvement in the day to day running of the company.

3. The remuneration of the members of the Audit Board and the officers of the General Meeting shall comprise a fixed component only.

4. The fixed component of the remuneration of directors shall consist of a monthly amount payable fourteen times a year or of a pre-set amount for each meeting of the Board of Directors attended.

5. A monthly rate shall be set for the fixed component of the remuneration of directors for all those who are members of the Executive Board and those who, although not members of such Board, perform duties or carry out specific work of a repeated or ongoing nature.

6. The pre-set amount for participation in members of the Board of Directors shall be fixed for those who have duties which are essentially advisory and supervisory.

7. The fixed remuneration of the members of the Audit Board shall consist in all cases of a pre-set amount paid fourteen times a year.

8. The fixed remuneration of the officers of the General Meeting shall consist in all cases of a pre-set amount for each meeting, the remuneration for second and subsequent meetings being lower than that for the first general meeting of the year.

9. In setting all remuneration, including in particular the distribution of the total amount allocated to the variable remuneration of the Board of Directors, the general principles established above shall be observed: the duties performed, the state of the company’s affairs and market criteria.

The Remuneration Committee

Chairman: Egon Zehnder, represented by José Gonçalo Maury Member: Frederico José da Cunha Mendonça e Meneses Member: João Rodrigo Appleton Moreira Rato

Annual Report 2010 208

ANNEX V Report of the Ethics Committee

At its meeting of 22 April 2010, the Board of Directors of Portucel - Empresa Produtora de Pasta e Papel, S.A. approved the Code of Ethics which was then disseminated to all the staff of the Company and its subsidiaries, by means of Service Order 01/2010, published on 28 May.

With the publication of the Code of Ethics, the Board of Directors proceeded to appoint the undersigned as the members of the Ethics Committee, who took office on the same date, 28 May 2010.

Following on from the publication of the Code of Ethics, the Workers’ Committee in the Company requested clarification of a number of issues relating to compatibility of some of its provisions with the Employment Code and other legislation in force, and the Ethics Committee was called on by the Board of Directors to issue its opinion on this set of questions.

In response to this request, the committee met and concluded in favour of alterations which were then accepted by the Board of Directors after a number of meetings with the Workers’ Committee. The final version of the Code of Ethics was accordingly approved.

The Code was then forwarded to the Authority for Working Conditions.

During the 2nd half of 2010, corresponding to the period during the year in which the Ethics Committee was in office, no specific situation was submitted to it for analysis and its recommendations.

Setúbal, 18 March 2011 The Chairman

______Júlio de Lemos de Castro Caldas

The Members

______Rita Maria Lago do Amaral Cabral

______Paulo Miguel Garcês Ventura

Annual Report 2010 209